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Saving for a better future

June 1st 2010

Get into the savings habit

It can be difficult to regularly put away money into a savings account. There are always demands on your money and savings aren’t always at the top of the list of priorities. Be aware that some savings accounts offer bonus rates for introductory periods only and have restrictions on when and how often you can access your money and the amount you can pay in.
 
Utilise the tax benefit of your pension
Your pension is the most tax efficient way to save for the future, as you receive tax relief on your contributions. Basic rate tax payers receive 20%, whilst higher-rate tax payers can be entitled to up to 40% tax relief, depending on how much they earn above the higher rate band. Please note, however, that the value of any tax advantages will depend on your personal circumstances which may change and remember tax rules can also change.
 
If you are married or in a civil partnership and one of you pays tax at the basic rate of 20%, you could make sure that all the savings are in the name of the lower-rate tax payer. This means that you’ll pay much less tax on the interest earned, saving you money.
 
Cash ISAs
All tax payers should use cash ISAs as their first savings vehicle. These are like normal savings accounts, but have the big benefit of being tax free. Did you know that with effect from 6th April you can now save up to £5,100 a year into a cash ISA however, if you don’t use your allowance, you’ll lose it.
 
Regular savings accounts
These accounts consistently out-pay standard savings accounts. They require regular monthly payments into the account and don’t lock your money away as a fixed-rate account would do. The drawback is that you can’t just pay in a lump sum.
 
Fixed-rate savings account
These guarantee a certain interest rate for a given period of time, because the interest rate is not affected by fluctuations in the Bank of England’s base rate. Although, this gives you a guaranteed return, there are other things that you should consider, for example, many fixed rate accounts do not allow any withdrawals during the fixed-rate period.
 
Standard savings accounts
These offer instant access to your money, which gives you flexibility. Both regular savings accounts and standard savings accounts, however, require that you pay tax on any interest earned on them.
 
And a final thought….
Always make sure that you know what your goals are when you think about savings. Are they short-term (less than two years) or medium to long term? Are you likely to need regular access to the funds? If you have children, you can also explore utilising their accounts to start saving for them.
 
Whatever you decide it’s better to start saving as soon as you can, with as much as you can afford to invest.
 
Prosperis are independent financial advisers providing a comprehensive range of financial advice to individuals including; pensions, investments, mortgages, ISAs and Bonds. Our independent status ensures that our advisers always act in the best interests of each individual client. To speak to us about your financial needs call 0113 287 8200 or e-mail advice@prosperis.o.uk