Your saving strategy for 2011: young professionals

29 December 2010

Read our 2011 saving strategy for families here

Read our 2011 saving strategy for the recently retired here

Our savings have taken a serious battering over the past year. The average instant access interest rate is now just 0.79%, according to Moneyfacts. Added to this, many of us have been forced to dip into our rainy-day funds.

The average Brit's cash reserve is currently a meagre £1,771, according to ING Direct, which falls well short of the recommended minimum for emergency savings (equivalent to three months' salary).

With a barrage of public spending cuts set to hit in April and more job losses on the horizon, growing our financial safety net should be top of our agenda for 2011.

Yet this idea was thrown into question in September when the deputy governor of the Bank of England, Charlie Bean, surprised us all by suggesting we should be out spreading our cash around instead. Bean told Channel 4 News: "In the short term, we want to see households not saving more but spending more."

Frittering your money away might be good for the UK economy as a whole, but with personal debt standing at an all-time high, getting into a savings habit is surely more important than ever.

So where do you start? As with all financial decisions, the right choice will depend on your personal circumstances.

Here we take a look at the dilemmas facing the young professional, and offer some solutions.


Natasha is a 29-year-old advertising sales account manager. She rents a flat with her sister and is trying to save for a deposit to buy a house with her boyfriend.

She puts away £100 a month into a cash ISA, which has a balance of £2,800 and currently earns a paltry 1.2% AER. She would like to save more but is still trying to clear a niggling £4,000 debt spread across two 0% credit cards by paying £100 a month towards it.

"I want to be debt-free and reach my savings target of £10,000, but I don't feel like I'm getting any closer to either of these goals at the moment," says Natasha.

What she needs to consider...

Currently, Natasha's two goals of saving and paying off debt conflict with each other. As a general rule, saving when you have debts is a false economy – and this is especially the case in the current low-interest climate.

While Natasha has been savvy by transferring her credit card balance to 0% cards to ensure the debt doesn't grow further, it continues to be a financial noose around her neck.

Repaying £2,800 in a lump sum would bring the credit card balance down to £1,200. This could be cleared in just six months if Natasha stopped her ISA contributions for now, enabling her to double her monthly debt repayments to £200.

She would then be completely debt-free by June and able to focus solely on building up her house deposit.

She should then start saving again into an ISA. Although many savings accounts are paying more competitive rates at the moment (for example, Santander is paying 4% fixed for 13 months on savings of £20-£250 a month, compared with the best ISA rate of 3.05% from Northern Rock), because she's a higher-rate taxpayer, an ISA will be better for Natasha. Also, as it gets closer to the end of the current tax year, she should benefit from more competitive rates.

With monthly payments of £200 and a rate of 4%, it will take Natasha just under four years to build up a sum of £10,000.

Expert advice from IFA Anna Sofat

"While Natasha focuses on clearing her debts as quickly as possible, she should also look at her outgoings to see if there's room to make further savings and set a monthly budget.

"It's easy for money to leak away in small, thoughtless purchases, as well as through failing to shop around for products and services, so Natasha could find that reviewing her monthly expenditure would substantially boost her savings."

Our savings advice comes from Anna Sofat, who is a highly regarded financial expert and founder and director of Addidi, a wealth management company in London.

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