Savings offer stability, especially during the current era scarred by inflation and sky-high property prices. Yet the cost of living crisis has led growing numbers to shun savings. Three in 10 UK adults – or 15.9 million people – do not have any type of savings account, an increase from about a quarter in 2020, according to The Financial Conduct Authority [pdf].
So, what holds so many back from regular saving? An income that barely covers living expenses is one reason, though it’s worth keeping in mind the cumulative power of small amounts. Even tiny sums put away regularly over years or decades can grow into a sizeable stash, given the expansive power of compound interest – with interest paid on the original sum plus the interest, mounting up over time.
Another barrier to saving is a lack of specific savings goals, which can demotivate and disincentivize people from creating a nest egg. A carefree attitude to money may mean we fritter away the pounds without regard to the future, while “doom spending” – expensive purchases made for instant gratification to cope with stress and financial worries – can send us into a spiral of debt.
Overcoming the psychological blockers to regular saving will mean putting controls on spending, committing a portion of income each month and creating three buckets for savings – short, medium and long-term.
Everyone should build up a short-term emergency fund, usually defined as between three and six months’ of living expenses. This is a fall back in case of a change in circumstances such as losing your job. An easy access savings account paying a decent rate of interest would serve well for this purpose.
Medium-term goals could include saving for a career break, car or deposit on a home. And in the long-term, a workplace pension could be topped up by investments that can pay out over time.
For short to medium goals, a high interest cash Isa could be helpful. The Isa is a tax wrapper – no tax is paid on the interest earned and savers can put in up to £20,000 each year. For savings outside an Isa, UK standard rate taxpayers pay no tax on the first £1,000 of interest they earn, falling to £500 for higher rate taxpayers*. So if your savings are going to earn more interest than this, it makes sense to put them in an Isa.
When interest rates rose over the past two years, savings products became increasingly attractive. Before 2022, some accounts offered just 0.1% interest, but now many boast rates of up to 5% or more. Trading 212’s cash Isa offers 5.1% interest (variable), paid daily. It is also flexible, allowing withdrawals at any time with no penalty.
For longer-term savers, an investment Isa may be suitable, offering a tax-free way of linking savings to the performance of assets and the stock market. It should be remembered, of course, that investment assets can rise or fall in value.
Saving today is enhanced hugely by technology, which allows regular payments and checks on performance at the tap of a smartphone screen. Mobile apps for buying and selling stocks, shares and funds have opened the world of asset trading to more people.
Trading 212 has brought the innovative Pies & AutoInvest option to its trading account for investors. This is a powerful tool for creating diversified portfolios of stocks, shares and exchange-traded funds (collections of assets such as stocks, currencies, bonds and debts). The innovation allows investors to make regular payments that are automatically allocated to investments in the proportions the investor has specified.
A Pie allows investors to choose different stocks, assets or funds and represents them on the mobile app as slices according to their share of the Pie. The investor can decide the size of each slice, allocating funds to their preferred assets. For instance, with five assets, the Pie will default to 20% slices for each. The investor can adjust the allocations, for instance giving four 15% each and giving one 40% – totalling 100%.
Pies are flexible and their set up can be shared with fellow investors. A Pie Library on the Trading 212 app offers a rundown of the most popular shared Pies from a variety of categories, such as Dividend Pies, Growth, EV and Green Energy Pies, Tech Pies and others. Pies can be copied with the Copy Pie button, and the Pie will be built with pre-filled slices that can be adjusted as required. This allows users to keep full control over their investments. But remember, Pies are offered on an execution-only service and are not investment advice.
However savers decide to top up their piggy banks – with cash Isas, stock trading and funds, bonds or other products – the benefits are not only financial. Saving can also enhance emotional stability and even help you sleep more easily. A study by the University of Bristol Personal Finance Research Centre found that putting aside even a small amount of money each month helps people become relaxed and optimistic. Those who save more have higher mental wellbeing scores and sleep better at night.
Innovation and a wide range of products on offer mean it has never been easier to find the right savings product to match everyone’s needs. Getting into the saving habit is a great way of taking control of your finances and improving your general wellbeing.
Visit the Trading 212 website for more detailed information on how to open a Trading 212 Cash ISA
Seek independent investment advice before entering into any financial transaction. When investing, your capital is at risk.
*Tax treatment depends on your individual circumstances and regulations, which may change.