Your Savings Myths- BUSTED!
Saving is straightforward right? Money goes into a bank account and there, it’s done… Here at Active we talk to clients a lot about ensuring that they are saving for their future, and you’d be surprised at how many savings myths we come across.
In our latest edition of our Mythbuster series we look at some of the commonly held misconceptions, and bust them!
Myth 1. If I have money left over at the end of the month I should save it.
This might seem a strange note to start on… after all this is a savings blog post, but before you start saving we think you should first look at your debts to make sure you are on top of them. Especially high interest debt. There is no point in saving for a rainy day if you are burying your head in the sand when it comes to your overdue payments. Using those funds to pay off credit card debt or overdrafts could reduce your interest charges significantly and leave you better off in the long term.
Myth 2. There is no point saving the tiny amount I have.
Not true! Saving just £20 per month into a savings account paying 3% for 5 years would provide a final value of £1,356.27 and if you saved £20 per month into a savings account paying 3% for 10 years this would provide a final value of £3,087.26. When it comes to savings- anything is better than nothing!
Myth 3. All savings accounts are the same.
This is definitely not true. There is a massive difference in interest rates across the market place – today as we write this blog we can see interest rates on savings accounts which vary from 0% to nearly 5%. Different accounts have different conditions or rules, so take the time to choose carefully and find the one which suits your situation.
Myth 4. Using an ISA for saving could save me even more money.
Bingo! An ISA (or Individual Savings Account) is a way of holding cash (shares or unit trusts) without being taxed on the income up to a certain allowance each year. Essentially, if you have your money in an ISA you receive your interest tax free, whereas if it was in a standard savings account you wouldn’t. But, beware, this landscape will change slightly in the April 2016 when tax rules change and we all get a tax free savings allowance to use against our savings accounts. We’ll tell you more nearer the time…
Myth 5. Children don’t pay tax on savings interest.
For most young people this will be true. Junior ISAs and Child Trust Funds get tax free interest (again, like standard ISAs you can put in up to a certain allowance each year). For other savings accounts you have to apply for tax free interest (which applies up to an income level of £10,600) when setting up the account. If you have already opened their account, there is a form available to claim back any unnecessary tax payments that your child may have made.
Note: Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Myth 6. Saving and investing are the same.
Definitely not. We think it is important to have savings which are accessible for a ‘rainy day’ fund. Investing generally needs a longer term approach, and an understanding of the potential risk. If you are not in the position to be taking risks, finding a good savings account is likely to be the safer option.
Myth 7. I just don’t have anything spare to save.
Ok, this might be true. But it is surprisingly common that people can find reductions in their spending. Get a budgeting tool and look at outgoings. Could you cut the number of coffee’s you buy each week or switch to a cheaper supermarket for your weekly shop?
We hope this has provided some food for thought, and perhaps fired you up to get a better saving plan. Of course, this is a broad and interesting topic with lots of options – we haven’t even covered the Help to Buy ISA which is on its way or numerous other nuances in the market. If there’s one thing to take away though, we’d like it to be this; there is plenty you can do to manage your money proactively.
The content of this blog is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.
The Financial Conduct Authority does not regulate advice on deposit accounts.