Making your savings work smarter
How to make the most of your savings is an essential part of getting ahead financially, and it is especially true at a time when inflation is increasing. It can be difficult to maintain the real buying power of your pounds.
When you should use saving accounts instead of investing
I have made no secret that I believe if you want to get ahead financially you need to invest in the stock market, the power of compound growth over time is amazing. However, investing carries risks, and although time can dilute these risks for you, if you need access to your money within five years you should avoid the stock market, because it can be too volatile and you risk getting back less than you invested, instead you should use savings accounts.
Emergency fund and saving goals
I always suggest you hold at least six-months of your expenditure as an emergency fund, this can be in National Savings and Investments Premium Bonds, or a savings account. In addition to your emergency fund you may be saving to purchase a car, take a holiday or for a deposit on a new home, if these are likely to occur within the next five years, you should use a savings account.
Using a platform for your savings (as well as your investing)
At my financial planning firm Lexington Wealth I have access to a saving marketplace which will source the best savings rates for my clients. I can often easily beat the high street rates available to retail savers, but this comes with a very high minimum investment, which can easily exclude the majority of everyday savers.
I invest via a platform which gives me access to the majority of investment funds available, rather than going to one fund manager directly, because if I wish to change my investment choice in the future. I can do so without the need of moving my investments from one provider to another, I simply switch funds.
I was delighted to recently discover Aviva Save which is a website platform of savings accounts. It offers you as a retail saver access to some high street beating savings rates, with ease of moving money from one account to another.
When you open your savings account, you may want to allocate your savings across several different time periods. The better rates require you to lock in your savings for longer, but you may not want to lock in all your money. Having some money instantly accessible for emergencies is sensible and tying some money up for a year or more could help you get the best of both. This is similar to how a professional would allocate your investments but opening several accounts with different companies is time-consuming and cumbersome to keep track of, and that’s why I like the Aviva Save model.
The most important thing to remember is to have some money set aside for emergencies, and if you have more than you need, ensure you are getting the best rates available.