KEY LEARNINGS

  • We will take a look at why you might look to create a savings goal.
  • Find out tips on how to grow your savings.
  • Understand interest rates and compound interest.

Read time

13 mins

Chapter 1

Chapter 1

SETTING A SAVINGS GOAL

Read time

2 mins

Life can be full of surprises - and sometimes those surprises can be expensive. Having a source of money ready to access can help you feel more secure and in control. Saving can also help you build towards your goals and get the future you want.

The first step to building savings is to set specific but realistic goals. Once you have each goal, decide how much money you want to save and how soon you need to save it.

The savings calculator from MoneyHelper could help you see how much you need to save each month to reach your goal(s).

If you're not quite sure what you should be aiming to spend and save each month, try the 50/30/20 budget approach to see if it could work for you. You can learn more about it in our section on budgeting.

By allocating a set amount to save while making sure you don't miss out on the things you like to do, you might be more likely to stick to a long-term savings habit.

As a rule of thumb, it's important to set aside an emergency fund with enough money to cover your essential outgoings in case of an unexpected expense or redundancy. A good figure to aim for is three months of your salary.

Chapter 2

Chapter 2

SAVING TIPS

Read time

3 mins

Make it a habit

One of the hardest parts of saving is remembering to do it. You could make it easier by automating it. For example, you could set up a standing order to move money straight into a savings account on payday.

 

Multiple savings accounts for different savings goals

Separating your goals into different accounts could make it easier to track your progress. Give the accounts nicknames that are meaningful and actionable. The more specific the better - for example, “Honeymoon July 2026”. It can help reduce the temptation to take a little from it for something else.

 

Saving your change

Some banks can help you move any change you get from purchases into a savings pot. For example, if your coffee costs £2.50, they'll transfer 50p from your current account into your savings account. Ask your bank if you can set up this feature. Over time this can add up to a decent amount and help you with one of your savings goals.

 

Other tips

  • If you have any repayments on debt that are coming to an end, you could arrange to continue setting aside this money - but put into a monthly savings pot instead.
  • Try meal planning to keep track of food spending and waste.
  • Tackle a savings challenge. Set up a standing order to your savings account for £10 a week, and you'll have £520 after a year.

Chapter 3

Chapter 3

COMPOUND INTEREST

Read time

2 mins

When you save into an account, you will earn interest. This is where your bank or building society pay money into the account because you save with them. An example would be if there is a savings account that earns 1% interest every year and you put £100 in to this account, over the first year you will earn £1 in interest.

Compound interest is interest you receive on top of previously earned interest.

It sounds like a riddle – but it's worth understanding, as it can supercharge your savings over time. Let's take a closer look using an example:

As above, you put £100 into your savings account at an annual interest rate of 1%. In the first full year, you earn £1 of interest.

But in the second year, the amount you earn increases – even if the annual interest rate stays the same – because compound interest starts to kick in.

So, in year two, you earn 1% of £101 – £1.01 in interest. In other words, you've just earned interest on your interest.

Thanks to compound interest, the longer you leave your savings untouched, the faster they grow. That's because you earn interest on increasingly larger balances that have grown with the help of interest earned in the past.

Scottish Widows Be Money Well is committed to providing information in a way that is accessible and useful for our users. This information, however, is not in any way intended to amount to authority or advice on which reliance should be placed. You should seek professional advice as appropriate and required. Any sites, products or services named in this module are just examples of what's available. Scottish Widows does not endorse the services they provide. The information in this module was last updated on 19th Jul 2022.

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