Saving can be tough and starting a savings plan can feel daunting. In fact, according to the Office of National Statistics, 59% of 18 to 29 year olds have no savings at all.
To make things a bit easier, we've outlined a few different kinds of savings plans so you can find one that might suit you and your savings goals.
First things first, it's important to figure out:
What your savings goals are and what you're saving towards
How much access you might need to money you're saving
How often you're planning on saving money
Savings Plan 1: Pay yourself first
Paying yourself first means paying a portion of your salary into your savings account as soon as you get paid, before you spend money on anything else.
To start this savings plan, you first need to see how much you can afford to save because you'll need to make a budget. Work out how much you have to spend on essentials like bills, and how much you usually spend on other expenses like groceries or going out. You should think about repaying any high-interest debts you have first.
Next, work out how much of your income is left and commit to put that amount straight into savings, every time you get paid.
This is a good first step, but if you want to save more, you could try reviewing your expenses and working out if there’s anywhere you can cut back. Lowering your expenses will leave you with more money to save!
If you use Monzo, you can set aside your savings automatically every month, and so this could be a useful savings plan if you’d like to save monthly without really thinking about it.
Here's how to do it:
Click on your profile photo to head to ‘your account’ section
Go to ‘Create a Pot’
Schedule a regular payment into it of the amount you worked out earlier
Set the ‘start date’ to the date you get paid, and repeat every month. That way you don’t even get to touch it, and it goes straight towards your savings goals!
Once you have at least £10 in savings, you could start earning interest by opening a Savings Pot through Monzo. You can earn up to 1.55% (AER/Gross, variable, 12 months Fixed Term) to help your savings grow.
The money you put into Savings Pots is fully protected up to £85,000 by the Financial Services Compensation Scheme (FSCS).
Savings Plan 2: Open a savings account to grow your money
This savings plan involves opening a savings account. A savings account is a place to keep your money and earn interest on it. If you're looking at creating a longer term savings plan, like a five year saving plan, this could be helpful!
There are different kinds of savings accounts you can open which include regular savings accounts, Individual Savings Accounts, easy-access savings accounts and instant access savings accounts. Find out which savings accounts you can open with Monzo. 💰
Interest rates, fees, and access to your money all depend on which type of savings account you chose, and which bank or building society you're with. The savings account you choose also depends on how much money you're hoping to put into a savings account, so it could be a good idea to work this out before committing to a certain savings account.
It's important to check and compare the Annual Equivalent Rate (AER) on savings accounts, as well as the interest rate. AER tells you what the interest rate would be if interest was paid and compounded once each year. AER makes it easier to compare how much you can expect to grow your savings over time.
Start a savings plan with a regular savings account
A regular savings account is an account you pay into every month, for a certain period of time.
If you're looking for a savings plan where you reliably set aside money each month (between £10 and £500) and you're fine with limited access to savings, this could be helpful. Regular savings accounts usually have a high interest rate, but this rate can go down if you miss payments or withdraw money.
Find out more about opening a regular savings account.
Start a savings plan with an Individual savings Account (ISA)
An ISA is a type of savings account. You can earn interest, dividends and capital gains from an ISA, without ever being taxed. The amount you’re allowed to pay into an ISA is limited by the UK government – the current allowance is £20,000 for the tax year 2019/20. There’s more than one kind of ISA, you can read more about them here.
You can now get tax-free savings through your Monzo account. All you need to do is create a Savings Pot to get started.
Start a savings plan with an easy-access savings account
Here’s how to get an easy-access savings account with Monzo.
An easy access savings account is useful if you're considering moving money into longer-term investments or if you want to be more flexible with the money you have, because they give you the flexibility to withdraw money when you need to.
An easy access savings account usually has a higher interest rate than many current accounts, but a fixed rate savings account will still probably give you the best rate of interest.
Start a savings plan with an instant access savings account
These savings accounts normally pay less interest than other savings accounts, but more than a current account. This can be a helpful savings plan if you want the option to withdraw money whenever you like, as you can access your money anytime.
To open an instant access savings account, you don't need lots of money either, so they’re often useful if you don’t want to lock away your money and need access to it just in case.
Savings Plan 3: Make sure a lump sum of money is in the right account
If you have a lump sum of money (which you might have from a bonus, inheritance, a gift, or somewhere else...) it might be helpful to make sure it’s in the best savings account.
Finding a savings account where your money can earn interest is the best place to start this. It's always important to compare the Annual Equivalent Rate (AER) when choosing which savings account is best for you. You can also try Money Saving Expert's lump sum savings calculator, to see how much interest saving your money could earn you.
Here are a few savings accounts that could be helpful for a lump sums of money:
A fixed rate savings account or fixed rate bond
If you're looking to put away your money for a set period of time, a fixed rate savings account or fixed rate bond could be best for you.
You lock your money away for a certain period and the interest rate is fixed. A fixed rate account usually earns you more interest than an easy access account. This means you can grow your money, but you usually can't withdraw it so it doesn't suit everyone.
The best fixed rate savings account for you will depend on how long you want to leave your money untouched for. The longer you can leave your money, the higher the interest rate you earn, so make sure you factor this into your saving plan!
A cash ISA
If you're a big saver, you might find that putting a lump sum amount into a cash ISA is the most effective way to manage your money.
A cash ISA is a savings account where you don’t pay tax on the interest you earn. If you're over the age of 16 in the UK, you can put up to £20,000 in an ISA for the tax year 2019/20. And once it's in, it stays tax-free. You can now get tax-free savings through your Monzo account too. To find out more, read about getting an ISA with Monzo here.
You can also take money out of a fixed rate cash ISA, although there might be penalties which means you lose interest.
Savings Plan 4: Save 'little and often'
Microsaving is an increasingly popular saving strategy that involves saving small amounts, often. By creating a saving plan that helps you save 'little and often’, you're building regular saving habits into your life. And it means over time you’ll see pennies add up into something more significant.
Rounding up your transactions using Monzo can be a good way to get started.
They involve saving small amounts of money every day or every week, and gradually increasing the amount you’re setting aside. The idea is that you’ll start off saving small amounts you won’t miss, then build up momentum until your savings have added up to hundreds or even thousands of pounds.
Not only is it an easy way to save, but if you manage to complete the whole 365 days of savings, you'll have a tidy sum of £667.95 saved 😮
If you’re looking to open a savings account to kick off a savings plan, open one with Monzo!💰