- As the pandemic ravaged economies, people were forced to dip into their savings to survive job losses.
- If you have any debts, it is advisable to pay off debts before beginning to save.
- Investing comes with a risk, savings do not.
As the Coronavirus pandemic brought economies on their knees, people were forced to dip into their savings to survive job losses. As lockdown norms were in place for almost a year, saving was the only option available to the people as there was hardly any avenue to spend.
Here is a guide what all avenues one has if they wish to save their money.
Before beginning to save, one must answer two basic questions.
- Do you have loans to repay?
If you have any debts, it is advisable to pay off debts before beginning to save. Interest paid on debt is generally much higher than what is earned on savings. Hence, it makes more sense to pay off loans before beginning to save.
- Save or invest?
It is very important to ascertain goals, whether one is aiming for savings or investments. Saving is to put all the money in a savings account for a fixed period and get it back with interest. Investing is to be open to the prospect of loss of money for a chance of making it grow quicker.
Also read: How big is the UK stock market?
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Investing comes with a risk, savings do not.
Where should I save money in the UK?
Different savings have different rules based on how much money can you put in and at what point in time. In order to get the best interest, one has to put money where it pays the best.
Since there is no one size fit, one can decide the best place to put their money depending on what best suits their requirements. However, some of the most popular modes of savings in the UK are the following:
Fixed rate bonds
If your aim is to go risk-free (only if FSCS protected) and you have a good amount that you wish to lock up, fixed rate bonds can be your best bet. These bonds have a lock-in period between half a year to five years. They offer competitive rates of interest hence giving a fair idea of the return value on the saved amount. This type of savings works during market uncertainty and when interest rates are low.
Anyone in the age group 18 to 39 is eligible to open a Lifetime ISA (LISA), which allows a person to put £4,000/tax year into LISA. The state would put a bonus of 25 per cent to it. Anyone saving £1,000 in LISA would have £1,250 as maturity amount. On saving the full £4,000, one gets a maturity value of £5,000.
The money and bonus could be used by first time buyers to use as a deposit for the residential property valued up to £450,000 after keeping the money in LISA for a year.
This is a kind of savings account that offers the depositor the flexibility to withdraw their money whenever they wish to. This can be done post a fixed notice period of 30 to 90 days. These accounts generally offer competitive variable rates of interest.
As unbelievable as it might sound, some banks’ in-credit rates can take over those offered by ISAs and easy-access accounts, especially now, when all interests are paid without deducting taxes. A depositor can make the maximum of all bank accounts before a LISA.
Cash ISAs (Individual Savings Accounts)
These provide the benefit of tax-free savings till an annual limit of deposit worth £20,000. There are three kinds to pick from, like instant access cash ISAs, regular savings ISAs, and Fixed rate cash ISAs.
The first kind permits withdrawals and deposits at any time without charging any penalty. In the second kind, a depositor can put a set amount every month in return for a fixed interest rate. In the third one, the deposited amount is locked in for a specified time for a competitive rate of interest.