This year is going to be important for your savings. With a worsening jobs market, any money you can set aside could become a lifeline – but falling savings rates mean you’ll have to work harder to make it grow.
One in five British savers have less than £1,000 saved for emergencies, according to research from AJ Bell – far less than the recommended stash to cover unexpected events.
“Most people should aim to have at least three months’ worth of essential expenses in an easy to access pot to help you through any financial shocks,” said Charlene Young, AJ Bell’s senior pensions and savings expert.
“Some people might want up to six months. This could be the case if, for example, you have a variable income or have people who are financially dependent on you.”
If your savings are lacking, here are some clever tactics to build up a decent rainy day fund this year – and maximise the cash you already have.
Set yourself up to save little and often
Advice to “save the pennies” has stuck in popular wisdom for a reason – you don’t have to commit to saving large sums every month for your savings to grow. Getting in the habit of saving a little whenever you can could build up hundreds over the course of the year – sometimes without you even realising it.
1. Set up automatic round-ups
A number of banks such as Monzo, Nationwide, Santander, Lloyds and Starling offer to set this up within their app.
It means that every time you make a purchase (typically any debit card or contactless payment), it automatically gets rounded up to the nearest £1 – amounts that are so small you won’t even miss them. The “spare change” is then swept into a dedicated savings pot.
Andrew Hagger, personal finance expert at MoneyComms, said: “You could set aside an average of £10-£15 per month (or £120-£180 per year) by using one of these tools. They offer a useful way to build a nest egg with minimal financial pain.”
If your bank doesn’t offer this, you could manually move your “spare change” to a different account (although admittedly this could require a lot of admin), or you could do it the old fashioned way and put your spare change in a real piggy bank.
2. Try a savings challenge
You may have already heard of the 1p savings challenge, which has grown in popularity in recent years. Part of its appeal is it starts, as the name suggests, by moving just 1p into a savings account.
On day two, you’ll move 2p, and so on – up to £3.65 after saving for a year. If you stick to it every day and don’t make any withdrawals, you’ll end up with £667.95.
Mr Hagger said: “If you like the idea of the ‘1p challenge’, don’t worry if you didn’t start on January 1. You can jump in part way through the year and just see how far you get.”
Monzo now offers this “hack” in its banking app, and users can also set it up via the IFTTT (if this, then that) app. Signing up to these options means your money will be moved automatically every day – but it’s also very doable to take part in this, and other similar challenges, manually.
For example, there’s the very straightforward “£1 challenge” where you just save £1 every day for a year, ending with £365.
Or, you could opt for a weekly challenge. The “52-week savings hack” involves participants setting aside £1 for the first week, £2 for the second, £3 for the third, and so on throughout the year. If you are disciplined and keep going for the full 52 weeks, you finish the year with an impressive £1,378.
For something a bit different, there’s the “last digit” method. This challenge involves you checking your bank balance at the end of each day, and adding the last digit to your savings account.
For example, if your balance is £1,234, you could then add either 4p, or 40p – or £4 – to your savings fund.
Aileen Robertson, head of savings at Atom Bank, said: “In general, we’re more likely to stick to habits that challenge and excite us and it’s no different when it comes to saving. To keep things exciting, try taking on a different savings challenge each year.”
3. Open a regular saver account
If you can save on a monthly basis, consider opening a regular saver account.
These accounts are great for building a savings habit, and often boast attractive headline rates – at the time of writing, you can earn up to 7.5pc, according to our best buy tables.
But what you need to know is that most of these accounts carry restrictions. Some will cut the headline rate if you don’t pay in every month, some have withdrawal limits, and some are only available for a fixed term, meaning you could earn less interest than you expect.
Mr Hagger said: “The headline interest rates on regular savers often look attractive, but once you weigh up the raft of conditions and penalties, they become far less appealing.”
In many cases, he suggests, you are just as well finding a “no strings” best buy easy-access account, and setting up a regular payment from your current account.
Boost what you have
If you already have savings, it’s important to make sure they’re not sat in an account paying little interest. With some shopping around, you can kickstart the compounding effect.
4. Switch to a better rate
Savers are in a tricky position where central interest rates are on their way down, but inflation hasn’t been following suit. When this happens, it becomes increasingly difficult to find a savings account that can beat price rises.
The key here is to do your research – you can compare rates using our best buy tables, and then move your money to a higher-paying account.
Kevin Mountford, of savings platform Raisin UK, said: “When rates start to fall, doing nothing can be costly. Many savers are still sitting in accounts that simply don’t keep up. Over time, that can quietly erode the value of their money.”
Rather than having all your cash in one account, it may make sense to split it up so you have one account that offers instant access, should you need it, and at least one other that is perhaps not so accessible but ideally pays more interest.
For the organised, you could split your money into several accounts to follow the laddering method below.
5. The laddering technique
Setting up your savings to use the laddering technique takes a bit of organisation, but once it’s done you’ll only need to account-hunt once a year.
To start, you’ll need to split your lump sum across a range of fixed-rate savings accounts with staggered terms (such as one, two, three and five years), helping you to maximise returns while maintaining access to a portion of your cash when an account matures each year. When it does, you can spend some if you need to, or reinvest it into another top-rate account.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The clever bit about this approach is you can ensure a slice of your savings matures every year, which gives you flexibility. Meanwhile, your savings are getting guaranteed fixed returns. So, if interest rates get cut, you’ll still be locked into great deals.
“Equally, if rates rise over the coming years, you can reinvest maturing funds at higher rates.”
Free up even more cash to save
To grow your nest egg further, you’ll need to swap your spending for saving.
6. Reorganise your budget
It’s hard to save more if you don’t know where your money’s going each month – but employing a new budgeting technique could help.
There’s the 50/30/20 method, which syphons 20pc of your income into your savings each month, while covering essential and “fun” spending, too. Or, you might prefer the more forensic zero-based budgeting technique, where you need to account for every penny you earn, and put it to work – including in your savings.
Then there’s cash-stuffing, where you withdraw your income for the week or month and place it in different envelopes for different purposes. Of course, the savings envelope will need to get paid back into a bank or building society – but fans of this method say it’s easier to keep control of their money.
7. Spend (almost) nothing
This final method requires a big dose of self-discipline, but if you think you’ve got what it takes, you could try a “no-spend challenge”. This is where you resist the temptation to open your wallet, and save what you would have spent.
You’ll still spend on essentials (such as bills, groceries and travel), but for a set number of weeks or months you’ll refrain from making non-essential purchases (such as takeaways, coffees and clothes). Some serious savers commit to full no-spend years.
By pausing habitual or impulse buys, the hope is you’ll become more mindful about where your money goes in future.
Ms Coles said: “This method is a good way to highlight wasteful habits and force you to make active decisions about every penny you spend. It gives you better control over your finances – while boosting your savings at the same time.”