Kickstart your savings habit
On average, we squirrel away just £87 a month now, down from £100 this time last year, according to National Savings & Investments' (NS&I) latest quarterly savings survey.
On top of that, almost a quarter of us (23%) aren't saving anything at all, up from 17% in the spring of 2011.
"When times are tough it can be difficult to save but even putting away a few pounds each week will help act as a financial cushion, should you face an emergency," says John Prout, retail customer director at NS&I.
"It is worth everyone taking another look at their finances to make sure their money goes as far as possible."
How to up your savings
Having some savings built up is a very liberating thing. So how can you improve, or create, a saving habit?
Start off by working out a monthly budget so you can see how much money you can afford to save, even if it's only £25 a month at first, it will soon build up. If you are going to start setting money aside, then the best home for it is a regular savings account.
These pay attractive rates of interest, as long as you make a monthly deposit. The best buy is Nottingham BS's Diamond Jubilee Saver, which pays 6% and you can save between £10 and £100 per month.
Another way to build up your savings without even really noticing is to ask your current account provider if it can set up a 'sweep' facility on your account. This means that at the end of each month your bank will take whatever is left in your account and sweep it into a savings account for you.
Finally, if you are a Lloyds TSB customer you can sign up to its 'Save the Change' service. With this, whenever you use your debit card your bank will round up the amount you spend to the nearest pound and put the difference in a savings account for you.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.