The ultimate guide to growing your savings

Once upon a time, long before credit cards were invented, and with the local bank a day's walk away, people used to keep their savings in a secure place at home: a pot in the pantry or under a special floorboard.

Although they didn't have the joy of clocking up interest on their stash, the habit of saving was commonplace.

Come the 21st century, and after the free-and-easy access to credit we've enjoyed in recent years, it seems we are once again starting to appreciate the importance of saving.

It's encouraging to see that the number of adults in Britain trying to put a little aside every month has increased to 60% in the first half of 2009, compared with 57% in the first six months in 2008, according to Bacs Family Finance Tracker.

However, this is still down on the 67% of Brits who were saving back in 2007. Even if we want to save, for some of us it feels like money is just too tight in the current economic climate.

"It's worrying that 38% of people have either reduced the amount they save over the last six months, or stopped altogether.

With lower disposable incomes and the cost of living increasing, we're putting less money aside than we did," says Owen Roberts, head of

But even if we can't squirrel much away each month, saving on a regular basis will mean that when we do have more money to spare, we'll be in the habit of saving instead of splurging.


Whether you're about to embark on a healthy eating regime or have a particularly undesirable DIY job hanging over you, the hardest part is getting started. I

t's the same with saving: for example, we might like the idea of putting money away on a regular basis to pay for Christmas at the end of the year, but the thought of doing without that sum each month puts us off actually doing it.

If you are determined to get a savings habit, however, the first thing to do is to make sure that you've budgeted for all your other expenses – it's no use saving a chunk of your salary only to find you don't have enough money to pay the rent.

Equally, it can be tempting to fritter away the money you had allocated for your savings pot; 55% of respondents to a Principality savings survey admitted they don't save more because they end up spending all their money.

Set up a monthly direct debit or standing order that comes out of your current account a day or two after you're paid. This will ensure that you've got enough money and that you contribute a set amount on a regular basis.

And because the money automatically comes out of your account, you won't have the option of spending it.

Instead of having a vague plan that can easily comes to nothing, set yourself clear goals. What are you saving for? Is it a rainy-day emergency fund that you may need instant access to?

Or are you trying to build up a house deposit over the next few years and want maximum interest on your money?

Your first savings priority should be building up enough savings to cover you for a minimum of three months' salary (but ideally six months'), in the event of losing your job or to cover any unexpected costs.

Put savings for other costs – such as holidays or Christmas – into a separate savings account so that you're not tempted to dip into the emergency fund and damage the interest rate by accessing the account.

Putting aside just £50 a month would give you £600 at the end of the year, plus interest – certainly enough to cover the Christmas celebrations.

How much money you're able to put into an account will effect what type of account you go for. "Are you putting in a lump sum or a small amount each month?" asks Michelle Slade, spokesperson for data experts Moneyfacts.

If you're saving towards something more substantial such as a house deposit you'll need to be strict with yourself to stay on target.

The average first-time buyer's deposit was £29,439 in the UK, so even if you manage to put £250 a month towards this goal, it will still take you 10 years to come up with the deposit.

Try to keep your money in an account that pays a competitive rate of interest. Research from shows that 31% of savers over 50 have never switched savings accounts, and 26% don't check their existing interest rates.

For example, you would have lost out on an extra £3,290 of cash, based on topping up an ISA to the full amount for the last 10 years, if you simply stuck with your existing ISA and never switched to one offering a better rate.

"The overall message on savings is that pretty much every product in the best-buy tables is either a new launch and/or a bonus rate. By all means take advantage of them, but remember to switch before the rate drops," advises David Black, banking specialist for Defaqto.



There is a range of various savings products to suit people's different needs; however, both Black and Slade agree that anyone trying to save should start by putting money into a cash individual savings account.

"At 20% for basic taxpayers and 40% for higher taxpayers, the tax-free allowance is definitely worth having," says Slade.

It might be tempting to plump for a higher-interest account, even if it isn't tax-free, but Black suggests always using your ISA allowance first. "Clearly, if you're a taxpayer, you should use your allowance. Then you can think about other accounts and options," he says.

Fixed-rate bonds

If you're able to tie up your money for a fixed period then fixed-rate bonds tend to offer the most attractive rates.

"Fixed-rate long-term bonds can still get 5%, whereas the best instant access is around 3%," says Black. As the darling of the savings world, fixed-rate products dominate the best-buy headlines, but their popularity also means that their high interest rates aren't around for long.

Slade says: "It's quite common for the top accounts to be pulled quite quickly. The message here is, if you see a good deal, act fast."

Although longer-term fixed rates are all around the 5% mark, you can get attractive rates on bonds that last just a year or two.

And not only can you access your money sooner, but you also have the chance of better interest rates in the future.

In general, it's better to go for shorter terms, unless interest rates are at market highs. Slade says: "With the base rate predicted to rise in 2011, going for a fixed-rate deal could mean you end up tied to a lower rate as overall rates improve."

There is also a chance that the interest rates that fixed-rate bonds offer will start to decrease.

"In the past, banks were relying on savers' money to fund other activities such as mortgage lending, but as they have got used to the crisis and how to handle their money, they now use other sources to fund these activities, so it's not so essential for them to attract customers with higher-interest rates," Slade adds. 

However attractive the promised interest, fixed-rate accounts will only work for you if you don't need the money immediately. "You should only consider fixed-rate bonds if you're sure you're not going to need the cash.

If you still want to take advantage of the rates, why not split your money between fixed-rate bonds and an instant access account?" suggests Black.

Easy access vs notice accounts

There's very little difference between notice accounts and instant access savings in terms of interest rates. "Last year easy access deals were actually slightly better than notice deals," says Slade.

The situation has now reverted back to normal, with the top notice account paying 3.25% compared with 2.76% easy access, but the difference is marginal, especially considering the different level of access.

Although notice accounts may have the edge in terms of interest, they typically require you to give notice of at least two to three, or even four, months if you want to withdraw money. Some accounts will give you access to your money early, but penalise you for the privilege.

On the face of it, notice accounts don't seem worth the trouble, although Black points out that, for some people, this limitation is precisely what makes these accounts attractive.

"As it's that much harder to get at your money and you've got to give notice, you're less likely to try – you may prefer to have that discipline," he says.

Even easy access accounts have their drawbacks, though; it may be easy to get your money but that doesn't mean you won't be hit by reduced interest rates or restricted terms and conditions for doing so.

Quite often linked products offer more attractive rates, but make sure the terms of the account suit you.

"Watch out for what happens to your money at the end [of the 12 months]," warns Black. "Sometimes the money just goes into a default account. Information on what happens to your money should be in the details you get at the start, so check first to see if it's suitable."

Regular savings

If you're able to make monthly payments, regular accounts are a good place to start your savings habit. You can open accounts from as little as £1, and typically deposit up to £250 a month. Withdrawals aren't usually permitted.

Building societies rule the roost with these types of account – as a result, some don't allow internet access.

This means, for example, unless you have a branch of the building society offering the top regular savings account near you, you'll have to manage everything by post and telephone.

Other options

For some of us, however, the interest rates savings accounts offer just aren't enough. So if you're willing to take on a bit more risk, you could turn towards slightly riskier products, such as corporate bonds and gilts.

If you're considering doing this, it's wise to speak to an IFA first to calculate how much risk you're willing to take.

Start saving for your kids

Nearly a third of parents and grandparents admit they have reduced the amount of money that they put aside for their children, according to a YouGov survey for investment manager Baillie Gifford.

James Budden, marketing director at Baillie Gifford, says: "With the amounts we're putting away for our children and grandchildren now reducing, the savings message needs to be stepped up.

"Although some parents and grandparents are continuing to invest in the current challenging economic circumstances, too few recognise the importance of long-term savings."

If your children are eligible for child trust funds this is a great way of getting into the habit of saving for them, but even if they are aren't, the earlier you can start, the less you will have to put away each month.

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I have a DIRECT ISA account with Santander and would like to know if it is worth transferring to another provider for a better a better interest rate, and how would I go about it?

C. Allport