Plan your savings

First steps to saving

Your first step should be to clear most or all of your debts as quickly as you can. Then, you should find a way of budgeting to save a little each month. To get in the savings habit, aim to put aside a day’s pay after tax every month.

Your next savings priority should be to set up a little pot of money for emergencies in an instant access savings account. You may find it helpful to set up a standing order to your savings account on payday. That way, the money will be transferred on a regular basis before you've had a chance to spend it and you probably won't even miss it.

At a glance

Start saving by clearing your debts and setting up a standing order into a savings account
If you want to be able to access your savings at short notice, open an instant access savings account
Save for the longer term with a fixed rate/term account
Get tax-free interest with a cash ISA

Savings in the short term

Whatever crops up in life, whether it’s an unexpected bill, a sudden repair job or a shock redundancy, having some money saved up can help you take care of it. Ideally, you should have enough money set aside to cover you for at least three months, but exactly how much you save will depend on your own circumstances.

There are several different types of savings accounts. They differ depending on how much interest they pay and how long you will need to leave your money alone before you can claim that interest. But, if you think you might need to take your money out of the account at short notice and don't want to pay a fee or lose interest if you do, then an instant access savings account is a good choice.

So, if you have some spare money at the end of the month, then you should think about starting to develop some short-term savings habits.

Develop short-term saving habits

Set up a simple, instant access savings account. Move any spare money you have at the end of the month to this account.
Set up a standing order for an amount you can afford straight after payday. Start small then build.
If you receive a bonus or pay rise, it's a good idea to use some or all of this extra money to start a savings account or add to one you already have.
Set up a budget on your spending.
Be disciplined. Set a savings goal and stick to it.

Short-term savings accounts

Cash ISAs

A Cash ISA is a good option as it is a tax efficient way to save. This is a savings account that pays interest tax-free up to specific limits. ISAs have been introduced by the Government to encourage more of us to save our money. You receive favourable tax treatment from the Government, so you don’t have to pay tax on the interest. Tax treatment depends on your individual circumstances and may change in the future.

Stocks and shares ISAs

You can use your ISA allowance to invest in a stocks and shares ISA which can be another way to save tax efficiently. Your annual ISA allowance currently enables you to invest up to a total of £20,000 in a stocks and shares ISA, or spread the full £20,000 across the four separate ISA types (stocks and shares ISA, lifetime ISA (up to the lifetime ISA limit), innovative finance ISA and cash ISA). Tax treatment depends on your individual circumstances and may change in the future.

The value of your investments and the income from them can go down as well as up and you may get back less than you originally invested.

Term deposits

You can often get extra interest if you are prepared to tie up your money for a set number of months with a 'term deposit' or savings bond. These types of savings products may offer a better interest rate but make sure you only put money in there that you won’t need in the short term.

Once you've got into the habit of saving for the everyday, it's time to start thinking about longer-term savings.

Planning for the long term

It's good to have some savings you can instantly access in case of emergencies. But, it’s also worth thinking about saving for the future and your retirement. Putting together a savings plan now will give you greater long-term security and help put your mind at rest.

Should I save or invest

Make a will

You’re never too young to make a will. If you die without one, any possessions you own such as your house, jewellery, a car, artwork, etc, may be distributed according to the law rather than how you’d like. By sorting your will out early, you can also make sure your beneficiaries don’t pay more inheritance tax than necessary.

Here are some tips to guide you as you start thinking about long-term plans:

Saving tax free

To make the most of your money, make sure you take advantage of your yearly tax-free savings allowance with an ISA.

Life insurance

You can help protect your family’s or dependants’ financial security by taking out life insurance. You could get a lump sum of money in the event of your death or if you’re diagnosed with a terminal illness, helping ensure that any outstanding debts such as a mortgage would be paid off.

Income in retirement

More and more of us are now living longer, so at some point you may want to consider your income in retirement. Speak to your employer to see if they provide a pension or are prepared to contribute on your behalf. Some will match any money you put in yourself.

Important legal information

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