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10
NOV
2015

The importance of saving

For various reasons, some people do not save. But there are many good reasons to have savings in place.

Emergencies

If you need to replace an expensive item, or to carry out urgent household repairs, you need rapid access to your savings. Financial advisers recommend that you hold an emergency fund of three times your monthly essential expenditure in an instant access account. Some people seek credit in an emergency, but loans can be hard to obtain, and high rates of interest may be charged.

Better returns than a current account

At times of low base interest rates, the rates offered on savings accounts may seem unattractive. However, leaving the funds in your current account may attract an even lower rate, or even pay zero interest. While finding a super rate may be difficult at present, generally fixed term savings accounts with restrictions on access pay higher interest than instant access accounts. Some of your savings needs to be accessible (see above regarding emergencies), but consider if you can place some of your funds in higher interest accounts.

Tax advantages

In the UK you can contribute up to £15,240 per tax year (2015/16 tax year) into an Individual Savings Account (ISA), where there will be no income or capital gains tax charged on your returns. This can be invested in a cash ISA, effectively a tax-efficient deposit account, or in stocks & shares, or in a combination of both.

Education

Many parents seek to educate their children privately, and fees here average £15,500 per annum (The Daily Telegraph, May 2015). Furthermore, university education in the UK now costs up to £9,000 per annum. Saving for this well in advance is strongly advised; if you expect your children to require funds for education in later life, the best time to start saving is often as soon as they are born.

Weddings

The average cost of a UK wedding is £24,000 (Brides Magazine, July 2015). Again, this is something you should consider many years beforehand. You cannot predict when your children will marry, but waiting until the engagement is announced is not recommended. If the wedding never occurs, you can use the money for another purpose.

Other saving for children

You may simply want to provide a gift on a landmark birthday. Savings for children can be done via any product, however the Government has introduced Junior ISAs, where parents can open and contribute to tax-efficient savings accounts held in the name of a minor.

Treats

You can accumulate a lump sum for a holiday or a luxury item through regular savings.

Retirement

If you want more than a basic income in retirement, you must make your own provision. Contributions to personal pensions in the UK are made net of basic rate income tax, so for every 80p contributed, the Government adds another 20p.

Christmas

If you dread your January credit card bill, you could consider saving for Christmas throughout the year. The best time to start saving for Christmas is often Boxing Day the year before!

Feel better

Having a lump sum available when you need it may make you happier and less stressed.

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