Having £2,000 in savings means you are 60% less likely to fall behind on household bills and have a much lower risk of problem debt than someone with little or no money put aside.
That is the headline finding from an academic study that has found that when it comes to the protective power of savings, “£2,000 is a turning point”.
However, if that feels unattainable, the good news is that even small sums make a difference: savings as little as £200 can help reduce the risk of falling into financial difficulties, researchers from the University of Bristol’s personal finance research centre found.
We all know how important it is to save, and putting some numbers out there may help give people a target to aim for.
The research was commissioned by the Building Societies Association to mark UK Savings Week. This runs until Sunday and is about encouraging people “to build better savings habits, whatever their starting point”.
Here are some of the more painless ways to start or build up a savings pot.
Get your money working harder
There are thought to be hundreds of billions of pounds sitting in current accounts earning little or no interest. You need enough money in your bank account to cover bills and outgoings, but if there is any left over, move it into a savings account, where it can earn interest.
To keep the money from building up again, you could set up a monthly standing order to pay into a savings account just after you have been paid. Or, at the end of each month, sweep what is left in your current account into your savings.
Saving little and often
You can squirrel away money almost without thinking about it by using a “roundup” tool or app.
Lots of banks and financial companies, from high street names such as NatWest and Lloyds to newer kids on the block such as Starling and Chase, let you round up any spending, usually to the nearest £1, and put the difference into a savings pot. So if you spend £3.60, you will be debited £4, of which 40p will go into your savings account. Some such as NatWest will let you multiply your roundups and send maybe two or five times as much spare change to your savings account.
The app-based Monzo’s paid-for accounts offer access to its “1p Saving Challenge”, where it will move 1p from your personal account to your challenge pot on day one, 2p on day two, 3p on day three and so on. If you keep at it for 365 days, you will have amassed £667.95, and you will earn interest (currently 3.5%) along the way.
Getting into the habit
Regular savings accounts offer some of the best interest rates. With these, you typically put aside some money each month for a limited period of time.
In many cases you do not even have to pay money in every month, but they arguably work best when you do. If you were to put £50 every month into an account paying 6% interest, it would take you three years and one month to pass the £2,000 mark, assuming the interest is calculated daily and remains the same. However, the headline rate on many accounts only run for one year, so you will need to start another one when the first ends.
Often, you have to have a current account with the bank offering the product. This is the case at Nationwide, where the Flex Regular Saver pays 6.5% interest.
There are a number of regular savings accounts that do not require an existing relationship.
Yorkshire building society recently launched the 50 Pound Regular Saver account paying 6%, which is open to all UK residents aged 16-plus and lets you deposit up to £50 a month over a 12-month period.
If you put in the maximum, when the year is up, you would have £619.50, including interest.
This account is available to open in branches, agencies and online (the online version is called the 50 Pound Regular eSaver).
Stash a little, (maybe) win big
The chance of winning a prize can add some spice to saving. NS&I premium bonds are the best-known option. When you buy these you are entered into a monthly prize draw where you can win between £25 and £1m tax free. The minimum you can pay in is £25.
The big downside is that they do not pay any interest and so are more vulnerable to inflation than other savings. The prize fund rate – the proportion of the total amount invested paid out to winners – is currently 3.6%. While you could strike it lucky, there is no guarantee you will win anything at all.
Coventry building society has just launched Sunny Day Saver (2), an easy access account paying 4.3% interest and offering 11 monthly prize draws (the first is on 17 October). It can be opened with as little as £1 and there is no requirement to save every month, but for each month that at least £10 is paid in, savers will qualify for a prize draw to win one of 10 prizes of up to £500. Those who save every month for 11 months will qualify for an additional draw next summer that has a top prize of £5,000.
Meanwhile, the savings and investment app Chip offers the Prize Savings Account where, instead of interest, you get the chance to win cash prizes every month. Currently the monthly prize pot is £75,000, including a grand prize of £10,000. Every £10 you save is one entry into the monthly draw, although you need an average minimum balance of £100 to be entered.
Benefit from Help to Save
There is a government-backed savings account called Help to Save that lets people on a low income get a bonus of 50p for every £1 they save over four years.
You can save between £1 and £50 each month (you don’t have to pay in every month), and you get bonuses at the end of the second and fourth years. These are based on how much you have saved.
The most you can pay in is £2,400 over four years (48 x £50), and the most you can earn from your savings in four years is £1,200 in bonus money.
This account is for working people receiving universal credit.
Use Isas for tax-free growth
The government sets a maximum amount that you can save in an individual savings account (Isa) or Isas each tax year – currently it is £20,000. The cash Isa is one of the main types, and you do not pay tax on interest on money in one. You can get a cash Isa from banks, building societies and other companies.
Check out the lifetime Isa, which helps people save towards their first home or for their retirement. Its big selling point is the free cash you get from the government: up to £32,000 in theory. You must be 18 or over and under 40 to open a lifetime Isa. You can pay in up to £4,000 each year until you are 50, and the government will add a 25% bonus to your savings, up to a maximum of £1,000 a year.
Check for forgotten savings
There may already be some savings cash out there with your name on it.
A number of online tracing services exist to help reunite people with lost and forgotten accounts.
A free service called My Lost Account brings together the tracing schemes of the banking body UK Finance, the Building Societies Association and NS&I (National Savings and Investments) into a single website, so you only need to fill in one application form.
Meanwhile, if you think you have some premium bonds but you are not totally sure, NS&I has its own tracing service you can use.
