You’ve got money put by in an emergency fund to help protect you – and your family – against nasty surprises life may throw your way. But how robust is that fund? You should aim to have at least three months’ worth of living expenses in the account, to provide you with some financial security if, say, you lost or job or your car conked it.
Got that sorted? Excellent. Now, you need to think of ways to make your remaining cash work extra hard for you. Here are some of the main options to consider:
Open an ISA
First up, you could open a cash ISA – if you haven’t already, that is. Unlike standard savings and current accounts, cash ISAs are tax-efficient ways of saving. But there’s an annual limit, which stands at £15,240 for the 2016/17 tax year.
There are other ISAs to consider, such as stocks and shares ISAs, which carry a risk of losing some or all of your money but with a possibility of greater gains.
Got an ISA? Then use your allowance!
One step ahead? Very well - but are you reaping the full benefits of your ISA? Apparently just 16% of savers are, a Barclays study conducted in March 2016 revealed. According to the results, savers are losing out on nearly £1 billion in ISA earnings a year by not taking advantage of their ISA allowance.
Unlike the lotto, your allowance won’t rollover, so you have until 5 April 2017 to use it.
Save regularly and you may be rewarded with higher rates of interest – sounds good, huh? If you commit to always banking some dosh on payday, some current accounts offer up to 5% in annual interest, Moneysaving expert* explains, provided you meet certain requirements, for example paying in a minimum each month and, more often than not, an upper limit on the amount you can save. It’s a good way to develop good spending habits, but you need to be dedicated – i.e., you need to stick at it longer than your New Year’s resolution to benefit.
Overpay your mortgage
Your mortgage is likely to be the biggest debt you ever take on. And like other debts, the sooner you pay it off, the less you’ll be stung by the wasp that is interest. Many lenders allow homeowners to overpay by 10% a year without being charged; however, you need to check the terms of your agreement before acting, as it can be costly if you invoke any early repayment charges.
Here’s an example cited by the Money Advice Service: if you have a £150,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum will reduce the interest by £11,500 and the repayment term by 18 months. That’s a mega saving.
If you’ve exhausted your savings options but still aren’t seeing the returns you’d hoped for, you may want to consider investing some of your money. Your savings are likely to grow quicker but there’s risk attached, and you could end up losing some or all of your money.
Investing isn't for everyone; but if you're willing to accept a level of risk, then you could be rewarded with greater returns. Find out more about investing for the future here.
We’ve based the information in this article on our understanding of HM Revenue & Customs practice as at November 2016. Tax rules are subject to change in the future and depend on your individual circumstances.
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