How to Begin Saving and Types of Accounts

Starting to save money can feel overwhelming if you’re not in the habit of doing so, but breaking down the process into small steps makes it easier. Here’s how to begin. 

Set a goal

Decide why you are saving, for example an emergency fund, a holiday, house deposit, or retirement. Having a goal in mind makes it easier to stay motivated. 

Track your income and expenses

Before saving, understand where your money goes. Review your bank statements and identify areas where you can cut back.

Create a budget

You could use the 50/30/20 rule as a guideline. e.g. 50% on needs, 30% on wants, and 20% on savings. Adjust these percentages to fit your lifestyle.

Start small and automate savings

Set up a standing order to transfer money into a savings account automatically; even £10 a week adds up over time. 

Build an emergency fund

Aim for at least 3-6 months’ worth of expenses in an easy-to-assess savings account.

Reduce unnecessary expenses

Cancel unused subscriptions, buy groceries in bulk, use cashback apps, and discounts

Choose the right savings account

Some examples of these are listed below:

Regular savings accounts

Best for: general savings, easy to access money 

Pros: low risk, often no minimum deposit, usually allows unlimited withdrawals

Cons: lower interest rates compared to other options

High-interest savings accounts

Best for: growing savings faster while keeping funds accessible 

Pros: Higher interest rates than regular accounts

Cons: May have withdrawal limits or require a minimum balance

ISAs

Best for: tax-free savings and investments

Types: 

Cash ISA- like a savings account but with tax-free interest.

Stocks and Shares ISA- invests in markets, with potential for higher returns, but carries risk. 

Lifetime ISA- for first-time homebuyers or saving for retirement, where the government adds a 25% bonus.

Innovative Finance ISA- for peer-to-peer lending, higher risk.

Cons: Contribution limit of 20k per tax year for ISAs, £4000 for LISAs.

Fixed Term Savings Account (Fixed rate bond)

Best for: locking away money for a set period, e.g., 1-5 years, for better interest rates.

Pros: higher interest than easy-access accounts.

Cons: cannot withdraw before the term ends without a penalty.

Notice Savings Accounts

Best for: those who don’t need instant access to their savings.

Pros: better interest rates than easy-access accounts.

Cons: You must give notice, for example, 60 days, before withdrawing money.

Easy Access Savings Accounts

Best for: emergency funds or short-term savings.

Pros: money can be withdrawn at any time.

Cons: lower interest rates.

Children’s Savings Accounts

Best for: saving for a child’s future.

Pros: some offer higher interest rates to encourage longer-term saving.

Cons: limited access until the child reaches a certain age.