Where’s the best place to put my savings?
There’s no one right answer to this question. The best place for your savings depends on your goals and your circumstances.
Some things to consider when choosing the best place for your savings are:
Are you saving towards something specific, for a rainy day, for your later years, or all of the above?
Do you need your money to be easily accessible or are you happy to set it aside for a while?
Savings accounts don’t always offer the best return. If you are comfortable with a degree of risk, investing could grow your money more than keeping it in a savings account
There’s a lot to consider when your money is at stake, so you might want to consider talking to a financial advisor before making any big decisions, but this article will outline some questions to consider and options to be aware of.
Do you have an emergency fund?
If you don't have savings set aside for an emergency, it could be worth prioritising that first.
Financial advisers always stress the importance of an emergency savings pot, and the figure typically recommended is three to six months of essential outgoings. This is cash you should keep handy in case something unexpected happens, like you lose your job or become ill.
Your emergency fund doesn’t need to be in your current account (in fact it’s better to keep it set aside to avoid accidentally chipping away at it), but it should be in an account you can access immediately as you never know when you might need the money. An instant access cash ISA or savings account is a good option for emergency funds, so you can earn interest while keeping your money easily accessible.
Do you have any debt?
Savings are brilliant, but if you’re in debt that you pay interest on it may be better to prioritise paying off the debt first (though it depends on the type of debt).
Money Saving Expert cover this in depth in their guide to paying off debts vs savings, but the key point is that the interest you pay on a debt can often cost more than you’d earn by saving the same amount of money (as interest rates on debt are higher than on savings).
This doesn’t apply to all debts, and is particularly complicated and nuanced around mortgage repayments and student loans.
What are you putting money aside for, and how quickly do you need to access your money?
Generally, savings accounts allow you to ringfence your money whilst also earning interest on your deposits. Different savings goals suit different ways of savings, so this is one of the most important considerations.
If you're saving for a rainy day/emergency fund, you'll want your savings to be immediately available, so an instant access savings account is probably your best bet.
If you’re saving for something which happens on a set date like a wedding, you might consider a fixed rate or regular savings account. Interest rates can be higher than with instant access accounts, but your money won’t be easily accessible until the fixed term is over.
Should you invest your money rather than saving it?
Generally speaking, savings accounts are better for short term savings goals (under 5 years). But, if you’re saving for the longer term (+5 years), you might want to consider investments.
Investments can offer greater returns than savings accounts, but your money is at risk, and there’s no guarantee you’ll get back what you put in. Investments are generally treated as a long term strategy, because it gives you time to ride out dips in the market, having a better chance of getting a positive return.
There are lots of ways to invest, but one of the easiest ways to get into investing is a managed fund or an index fund. This means your investments are spread across a group of companies and managed by someone else, or based on an index like the FTSE 100. The benefit of a fund rather than investing in individual companies yourself, is the risk of your investments is spread. You can choose to invest using a stocks & shares ISA or outside of an ISA.
The value of your investment can go up and down and you could get back less than you put in.
Interested in investing? Learn more about how Monzo can help you invest your money.
Should you pay more into your pension?
If you’re already paying into a pension, investing more into your pension can be a good long term strategy (if you don’t need your savings to be accessible until retirement).
Some benefits of paying more into your pension are:
It can be a tax-efficient way to save as you won’t pay income tax on your contributions (subject to individual circumstances). If you’re a basic rate (20% tax payer), then for every £100 you put in, the government will add £25 (80% of £125 is £100). If you’re a higher or additional rate taxpayer, you’ll get even more tax relief.
You might be able to earn “free money” if your employer matches your contributions
Because the investment is likely to be a long term one (depending on your age), you will benefit from compound returns.
Compound returns are similar to compound interest. Compound interest is where you earn interest on the interest you previously earned - more free money! Pensions can reinvest the income they get from their investments (for example dividends from shares) to make more investments and receive more income.
All tax relief for pensions is subject to caps, so do check this before considering this investment option.
This isn't financial advice or personalised to you, and we're not recommending or suggesting you take any particular action. If you're in any doubt about what's right for you, then speak to an authorised financial advisor.
Tax treatment depends on individual circumstances and may change in the future.
The value of your investment can go up and down and you could get back less than you put in.
Find out more about saving and investing with Monzo.