I want to save money . . . but where? 8 best places!

The best places to save money in 2021…!

Some of our recent articles have been about saving money. For example, how to save money on food shopping or energy bills or just generally save money as a family. We hope that they have helped you to reduce your costs and to begin to regain some control over your finances.

But if you are now at the point where you are managing to set aside a little bit of money each month, what is the best thing to do with it? We hear so much about rock bottom savings rates, lower Premium Bond prizes and so many investment scams that it’s hard to know what to do with any money that you might want to save.

So in this article we take a quick look at eight possible places to save money:

 

Pay down your debts

Paying off debt may seem completely the opposite to saving money, but it is currently one of the best ways to save. At the moment, interest rates for savers are low, but if you have debts – for example a loan or credit card – those interest rates are likely to be considerably higher.

So let’s say you have £100 a month that you want to save. If you put that money into a typical savings account, it would be safe but would gain very little interest. But if you have a credit card debt of £1000, paying £100 into it each month could pay it off within a year and save you several hundred pounds that you would have paid in interest charges: money that you can use for other things.

Try the free Credit Card Calculator on Money Supermarket to see how much interest you can save by paying more into your credit card each month.

 

Overpay your mortgage

Still on the theme of paying off debt, another good option for saving money is to start overpaying into your mortgage, if your mortgage lender will allow you to do this. 

Whether you make occasional extra payments, or pay a higher amount each month, it will have the effect of reducing your original mortgage amount, and also the amount of interest you have to pay. These changes could enable you to pay off your mortgage earlier than originally planned, perhaps even by years. 

Check out the free Mortgage Overpayment Calculator from Money Saving Expert to see what difference occasional or regular overpayments could make.

 

Bank account

Because savings interest rates are low at the moment, if you need easy access to your money, a good solution could be to simply leave it in your bank account. 

However, if you decide to do this, you need to be strong-willed about not dipping into the money just because it’s there. You also need to be sure that you are getting the best deal from your bank. This may not just be in terms of interest rates, but also other benefits such as cashback, rewards, vouchers, discounts and other special offers.

Some banks also offer additional incentives if you switch your main account to them. For example HSBC are currently offering £125 to people who switch to them, as well as access to a savings account with 1% interest. So it is worth spending a bit of time looking around at what deals banks are currently offering. 

 

Savings accounts

Most banks and building societies also have a range of savings accounts. To make sure you find the right one for you, you need to decide how long you are prepared to lock your money away for. 

If you may need access to your money, you need to look at an easy access savings account. This allows you to deposit and withdraw money any time, without having to give any notice. But because of the convenience, interest rates on easy access accounts are usually low – typically around 0.1%.

If you are prepared to tie your money up for a little bit longer, then a notice account or fixed rate bond may be a better option for you.

• Notice accounts

A notice account will give you a better rate of interest but requires you to give notice (usually 2-3 months) if you want to withdraw any money. So if you are in the position to be able to plan ahead, this could be a good type of account to investigate.

• Fixed rate bond 

A fixed rate bond is a savings account that locks away your savings for a fixed period of time, usually between 1 and 5 years. The rate of interest is also fixed for that period of time, despite whatever happens to interest rates in the meantime. At the end of the fixed period of time you will be able to access your money, plus the interest you have earned.

 

Premium bonds

Premium bonds are a popular way of saving, and can return around 1% of the value of your savings. The rate of return is not guaranteed, but your bond numbers will be entered into a monthly prize draw, with tax-free prizes of between £25 and £1million.

Premium bonds can be bought online from NS&I (National Savings and Investments) in multiples of £25 and can be cashed in at any time.

NS&I also offer income bonds as another savings option. Interest on these bonds is paid directly into your bank account every month. The current rate of interest is only 0.01%, but your money is safe and you can pay in or take out money at any time.

 

ISA and LISA

An ISA – Individual Savings Account – enables you to save up to £20,000 a year. Unlike savings accounts, you pay no tax on the interest. Most banks and other financial institutions offer an ISA, so all you need to do is track down one that interests you and apply either in branch or online. 

There are two main types of ISA, a cash ISA and stocks and shares ISA:

• Cash ISA

A cash ISA is virtually identical to a savings account, but any interest you earn is tax free. Most ISA’s offer around 0.5-0.6% interest. Some providers also offer fixed rate ISAs with a higher rate of interest but you would need to lock your money away for longer

• Stocks and shares ISA

A stocks and shares ISA invests your money in stocks and shares. It is less safe than a cash ISA because the value could go down as well as up. But this also means that you could get a much better rate of return from a stocks and shares ISA than a cash ISA, if you are prepared to leave your money in it longer term.

If you are aged between 18 and 40, you are also eligible for a Lifetime ISA (LISA) . This enables you to save up to £4,000 each year and the government will add a 25% bonus to your savings every year until you reach the age of 50. But be aware that you can only withdraw your money from a LISA for specific reasons, either buying your first home, reaching the age of 60 or being diagnosed as terminally ill, with less than 12 months life expectancy.

 

Stocks and shares

We have just mentioned stocks and shares ISAs, but you can also invest in stocks and shares yourself. What this means is that you invest your money in a business, and will get interest on that money depending how the business is doing. So again, investing in stocks and shares should be thought of as a long term investment because the value of stocks and shares can fall as well as rise. 

The easiest way to buy stocks and shares is to set up an account either through your bank or with an online share dealing platform such as Hargreaves Lansdown, eToro or IG.

 

Pensions

If you are currently employed and have a workplace or private pension you could view your pension as a form of long-term saving. If you have money to save, a good option is to pay it into your pension either as a lump sum or each month. This will bring you two benefits.

The long term benefit is that you will have a bigger pension when you retire, so more money to live on for the rest of your life. The short term benefit is that if you have a workplace pension you will probably pay less tax. Most workplace pensions deduct your pension contributions from your salary before you pay tax. So you won’t have to pay tax on anything extra you pay into your pension.

If this option is of interest then speak to your employer or pension provider about setting up additional pension payments. 

 

We hope that the above information helps you to decide where is the best place for you to save money in 2021. 

Remember to check back here soon for more financial and lifestyle tips from Simple Fast Loans.