The savings habit is instilled in us at an early age, and the graduation from money box to our first savings account seems like the first step to adult life.
But these days, with the lowest interest on savings for years and inflation last week announced at 2.7%, the savings habit is costing you money. The cash you put away is worth less in real terms when you come to withdraw it.
We look at what you can do to make putting money away worthwhile again.
Saving is still popular
As a nation we are still saving, with savers piled into cash at a greater rate than ever in 2017.
Having 3 months of household income as a financial safety net does seem prudent, especially in uncertain times, but if we want to keep our surplus as cash, we need to get the best returns on it.
A look at comparison sites can help show where the most rewarding home for your money might be at any particular time. The results can be surprising. Some current accounts can appear to offer better interest rates than notice accounts, traditionally the most rewarding home for cash. It’s important to look at the details. Some of the headline rates are introductory and will vanish after a few months, and there may be very low ceilings on how much you can actually save.
Spread your cash between accounts to earn the maximum on each one. Keep an eye on the best offers and be prepared to move funds as soon as you find a better rate. It can help your savings work harder and may help you reduce the effects of inflation, or even beat it altogether.
Investing can be more rewarding
Keeping some cash for emergencies may be a good idea, but you might be better off investing the rest of your savings. How much better off would of course depend on the investments you choose, and unlike savings, the return on investments is not guaranteed.
Before investing, do some research. There are many types of investment, and you need to find those that you feel comfortable with. You need to consider risk, what markets, sectors and businesses you believe offer the best returns. You might need to consider a variety of asset types, and to think about bonds as well as equities.
You could find that there are plenty of companies offering investment advice online, but beware, not all will be as impartial as they appear.
It can all seem rather a lot to take in if you are new to investing. The best solution may be to invest through a managed fund. These are run by fund managers who invest in a range of companies, spreading your risk for you. Even if one holding performs badly, others will hopefully perform better, therefore smoothing out overall fund returns.
There are many funds available, allowing you to invest in a sector of your choice, and with a level of risk (or potential for growth) that you feel comfortable with.
It’s probably best to make regular monthly contributions rather than a single lump sum investment. Even modest amounts of perhaps £50 a month will allow a pot to grow steadily over the years, relatively pain free.
If you are new to investing, it can pay to get professional help. You may need advice on such things as your tax position, and whether an ISA could make investing even more rewarding.
The value of investments can fall as well as rise and you may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.