Why easy access savings may not add up

Date Published: 05/06/2019 12:46

We all know the theory – keep a little bit of cash aside in an easy access account for those emergencies: the boiler packs in, that bill you didn’t expect comes through the post or you just want to book that bargain holiday.

But how much money should you keep in an easy access account? Well it seems more than three-quarters of cash savings in the UK are held in such accounts. They might have the advantage of being easy access, but they have the disadvantage of not often paying a decent interest rate.

The best accounts that offer money at your fingertips are paying up to 1.5 per cent interest AER (Annual Equivalent Rate). But if you are like the majority of people who keep such cash tied up with one of the bigger banks you could be getting an AER as low as 0.15 per cent. And that really is peanuts!

So what should you do? One approach is to literally split your savings in two.

Firstly work out how much cash you are really likely to need in an emergency. It is often said the equivalent of three to six months salary should be enough – and that is not a bad rule of thumb. Imagine something major like massive house repairs or losing your job; would six months salary be enough? If it would, then that cash can be kept in an instant access or even current account. And the rest of your savings can be squirrelled away elsewhere.

You might want to look at a fixed term account for your long term savings. You might be putting money aside for the holiday of a lifetime, a major purchase (that yacht / sports car you have always wanted) or perhaps just an unspecified rainy day in the future. Whatever it is you are saving for in the future, you can lock the money away and get a better rate. The savings term might be anything from three months to five years. Generally the longer you keep it in the better the rate. Who knows you could even get as much as 2.5 per cent! It is at least more than the current rate of inflation.

No individual investment advice is given, nor intended to be given in this article and liability will be accepted in respect of any action you may take as a result of reading this article. If you are unsure you are urged to take independent investment advice.

For more advice about different types of saving, please get in touch. Contact us on 01246 435 996.

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