Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Having a pot of savings on hand can’t take away the risk that things suddenly change, but it can certainly make things easier and allow you some breathing room if you need to change direction for any reason.
Building savings takes time and dedication but there’s plenty you can do to help yourself along the way.
Here’s three tips to give your savings a boost.
1. Carve out some extra savings from your spending
One virtue of lockdown is that there are many things we’re spending less money on. We all want to get back to normal as quickly as possible but, if we’re honest, there’s probably a few things lurking on our bank statements that we would be happy to get rid of permanently.
Some of these are easy - if you’re spending £50 a month for a gym membership you haven’t used all year, now seems like a good time to cut your losses and cancel. You can always go for a run for free.
Beyond that, consider any subscriptions you have running for TV, broadband or mobile packages - or anything else. You’ll want to keep a lot of these but it won’t hurt to reassess what you’re paying for and whether you think you’re getting good value. The deals you signed up to a year or more ago may not be the best you can get now.
Finally, take an honest look at your historical spending to see if there are areas that can be trimmed in light of the changes being forced on us by Coronavirus. You’re likely to be eating fewer meals out for example. Could this become a permanent change? Your bank balance - and waistline - will thank you for it.
It’s always wise to have a pot of cash to cover for emergencies and unexpected events. For example, if the boiler needs to be replaced, can you pay for it? These things can’t be planned for entirely and many financial experts suggest that savings worth three to six months of earnings is a good guide. Beyond that, any extra savings can be put towards your longer-term saving goals.
2. Put those savings to work for the future
Once you’ve built a cash buffer you might consider investing any extra savings into a tax-efficient savings plan either via a Stocks and Shares ISA or a pension, such as a Self-Invested Personal Pension (SIPP). As much as £20,000 can be contributed to an ISA each year, where it can grow free from tax. Money paid into a pension, meanwhile, can benefit from tax-relief which means a £1 contribution today costs you 80p if you’re a basic-rate taxpayer, as little as 60p if you’re a higher-rate taxpayer and 55p if you pay additional-rate tax. There is a £40,000 Annual Allowance on pension contributions. You can read more on pension tax relief here.
Making regular contributions to your investments as part of a savings plan can help them grow into a sizable sum over the long-term, even if you’re only investing a small amount. See how regular savings could grow over time.
The length of time you invest for is the single biggest factor that determines growth opportunity - the longer, the better, although of course there are no guarantees. And regular investing has two significant advantages over timing the market. Firstly, your savings can benefit from compounding if the funds you invest in are the type that generate income which you use to reinvest rather than it being paid out to you. Over time this will compound, as effectively you’re getting interest on interest, helping your savings to grow even faster.
Secondly, by steadily making contributions, you could benefit from a process known as pound-cost averaging. This means buying more units in your investments when prices are low and fewer when prices are high.
3. Consider consolidating
By holding all your investments in one place you’ll be able to see instantly the overall size of your pot and how your investments are performing.
Consolidating savings - whether they are in ISAs or pensions - means bringing accounts from different places together so that you’ll be able to more easily manage your investments and make decisions to help get your money working harder.
You should always consider costs when investing, so if you want to transfer an old workplace pension to a SIPP you need to ensure you’ll be getting value for money, whether that’s a wider investment choice giving you more ways to grow your money, or other added value benefits. And it’s also important you make sure you won’t be giving up important safeguarded or guaranteed benefits.
If you do consolidate it will also make it easier to ensure your investments are properly diversified and that you are not taking excessive risks in one area. You’ll be able to see how your savings are stacking up against your financial goals and take action if you need to.
Important Information:Tax treatment on ISAs and pensions depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55.
When considering a transfer, before making your decision, please read our transfer guide: Moving your investments to Fidelity which explains the options available and gives you the important information you need to know. It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our pension transfer factsheet. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly recommend that you seek advice from an authorised financial adviser. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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