Planning for Prosperity: Short-Term vs. Long-Term Saving 

As children we were encouraged to put our money away rather than spending it the moment a doting relative handed it to us. 

We found those notes and coins started to mount up and meant that we could buy the things we wanted.

But as we get older, we realise that there is more to saving than putting cash in a tin under the bed, and that to make the most of our money we actually need a savings strategy.

And the key factor when planning a savings strategy is to decide whether you are saving for the short or the long term.

Short-Term Savings

Short-term goals typically involve expenses or big plans that are on the horizon within the next few years. Common examples include saving for a holiday, buying a new gadget, or building an emergency fund. 

An emergency fund is a vital preparation for an uncertain world. Having a reserve of cash that you can call on in case of an unexpected major expense or a loss of income means that a crisis is less likely to become a disaster – and avoids the need to get into debt.

You need a home for your money that helps it grow as fast as possible, but crucially, you need instant access to your funds. Instant-access savings accounts and regular savings accounts allow you to withdraw funds when needed. It pays to shop around – interest rates vary between account providers, and it makes sense to make the money you are putting away work as hard as possible.

Perhaps surprisingly, some Cash ISAs also offer instant access, and protect your savings from the taxman. But if you are going to be taking your money out in the near future, they offer little advantage. It might be appropriate to keep them for cash you might not need to take out – such as your emergency fund.

Short term savings strategies

Choose the account with the highest interest rate you can find, and if you can top it up each month. Keep an eye out for the most rewarding account when rates change. It may be worth moving your money across.

• Instant-Access Savings Accounts: Ideal for easy and quick access to funds.
• Regular Savings Accounts: Offer higher interest rates for regular contributions.
• Cash ISAs: Provide tax-free interest on your savings.

Long-Term Savings

Long-term savings involve financial objectives that are years in the future. 

Most people have two long term objectives. The first is to build up a large enough deposit for a first home, and the second is retirement.

Both could be met with a savings product such as a Cash ISA, and a Lifetime Cash ISA could be particularly rewarding as they offer a bonus from the government on top of the interest your money might earn.

Although Interest rates are still relatively high, there is a limit to the kind of returns you can expect from savings. If you have several years until you are ready to cash in, you might want to consider investing rather than saving.  Investing means your cash is used to buy something, such as a share in a business. Unlike savings, there are no guarantees, but with careful investment and investment over at least five years, you may be able to enjoy substantially larger returns than a savings account could offer.

Of course, you should have a pension to prepare for your retirement as a part of your long-term strategy. This can be a particularly rewarding investment as it combines tax relief from the government with investment, and with the additional power of compound interest.

Long term savings strategies

You should certainly commit to making regular payments into your savings or investment account. Steady saving over several years helps ensure you don’t miss the money you put away – and that it can mount up faster.

• Pension Plans: Capitalise on tax advantages for retirement savings.
• Help to Buy ISA/Lifetime ISA: Specifically designed for first-time homebuyers.
• Investment ISAs: Stocks and shares ISAs offer potential for higher returns over the long term.

The strategy that’s appropriate for you

A savings strategy which is suitable for you needs, and which makes your money work harder is easier to arrange with some expert help.

At Continuum we can look at your savings objectives and find the accounts and investments – and retirement plans – which may help make them easier to reach.

Call us today to get our expertise working for you.

The Financial Conduct Authority does not regulate taxation advice and deposit accounts.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or savings strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested. Capital is at risk.

A pension is a long-term investment, the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.

Stocks and Shares ISAs do not include the same security of capital which is afforded with a deposit account.

By incurring a Lifetime ISA Government withdrawal charge you may get back less than you paid in.

By saving in a Lifetime ISA instead of qualifying pension scheme you could lose contributions by your employer, if any.

Saving in a Lifetime ISA may affect your entitlement to current and future means tested benefits. 

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. We recommend that the investor seeks professional advice on personal taxation matters.