Seven Reasons for Regular Saving
Alex de Wit
Personalised financial planning, affordable investment solutions and award-winning management services for expatriates.
by Infinity
In our consumerist world where you are incessantly invited to spend, spend, spend. Saving can seem deeply uncool, but when you find out all the benefits that you can achieve by saving, you’ll realise you can transform your life.
Here’s how:
1. It makes you feel good
Constantly being skint is not a good feeling. Having a bank account in credit and knowing that you are in control of your finances really is.
2. It prepares you for an emergency
Knowing that you have the money put by to deal with an unexpected emergency, whether that be a boiler that is on the blink, a car that refuses to start, or a leaking roof, is reassuring.
3. It makes you healthier
Stress is a killer – it can trigger a heart attack and stroke as well as less life-threatening but debilitating conditions such as depression, anxiety and insomnia. Relieving the stress that you feel when a financial disaster is just one paycheque away really could save your life!
4. It teaches self-discipline
If you establish a regular saving habit by putting money aside each month before it gets spent, you will learn to prioritise and resist the temptation of the fleeting high from acquiring something new in favour of achieving long lasting and more fulfilling goals.
5. It gets you free money
Interest earned on your savings is basically free money. The process of compounding earns interest on that interest which is more free money. The power of compounding can be really surprising. Don’t believe me? A $5,000 investment can grow to hundreds of thousands of dollars.
6. It gives you choices
Always dreamed of giving up your day job to set up your own business? With money in the bank to cover your living expenses for six months to a year, you could afford to take the risk. Want to retire early? The only way you’ll manage it is by building up a pension pot big enough to live off for decades – again, saving is the key.
7. It gives a good example to your children
A saving habit acquired early in life is a real gift to your children in setting them up to take control of their own finances and benefit in all these ways from a young age.
You might think you can’t afford to save, but can you afford to miss out on all these benefits? Make a real game changer this year and start a savings habit which will bring a lifetime’s worth of benefits.
What Is a Regular Savings Account?
A regular savings account is a type of monthly savings account that requires you to make monthly payments into the account. You can benefit from the interest rate of a suitable regular saver and earn interest annually.
A regular saver generally entails higher interest rates than easily accessible savings accounts. However, a regular saver imposes strict terms regarding the number of times you can withdraw money and the minimum monthly deposit you are required to make.
How Do Regular Savings Accounts work?
In its simplest form, a regular saver is a savings account that requires you to deposit a given amount monthly. When you open a savings account, your bank will typically ask you how much you are able to deposit each month and how you plan on paying, like with a standing order, for example. Some banks will allow you to alter your monthly contribution and your payment method as time passes.
If you meet all the necessary requirements, you will earn interest monthly according to how much interest the bank offers in regular savings accounts. There may be penalties involved if you miss monthly deposits and withdraw money, so read and understand the terms thoroughly before you sign up for a regular saver.
It is worth noting that every regular savings account will vary in requirements. Some regular savers will have lower minimum deposit and maximum monthly deposit limits than other accounts. Some accounts may not even include penalties when you withdraw money or miss a monthly contribution.
However, regular savings accounts with the best interest rates frequently entail the most unerring requirements, so do your research and compare various regular savings accounts before deciding on one.
In the UK, all eligible deposits in UK financial institutions will be protected by the Financial Services Compensation Scheme if the amount of the deposit results in a maximum balance of DBP85,000 or less per institution per individual.
Interest rate terms You Should Know
Gross Rate
The interest rate you receive before banks deduct tax.
AER
The Annual Equivalent Rate is the what the interest rate would be in the case that interest is paid as well as compounded annually.
PSA
The personal Savings Allowance is an allowed balance in your regular saver that is not taxable. In other words, if your interest sends you over your PSA, you will need to pay tax on your savings. The regulations and tax benefits depend on your individual circumstances.
Regular Savings Account and Tax
A regular savings account is taxed in the same way as any other savings account, meaning you will be paying tax according to the tax bracket of your income. Needless to say, tax brackets and regulations will differ between countries, but let’s look at the UK as an example.
What the personal savings allowance means:
The first GBP5000 pounds of savings interest additionally has a zero-tax band.
This regulation means that persons with a net income, including savings interest of under GBP18,570 in the year 2022, do not have to pay tax on the savings amount in their regular saver.
Making The Most of a Regular Savings Account
A decision that will have a major impact on your regular saver is whether you will choose a variable rate or fixed rate account. A fixed-rate account often entails more and stricter restrictions, but the rate is often very reasonable. Conversely, with variable deals, the rate might change over the term that you own the account, so the amount you will end up with is unpredictable.
The number of regular savings accounts with 12-month terms is continuously growing. Such a fixed term may be ideal for individuals who are saving up for a particular purpose for a year. Long-term financial goals, like a child’s education or retirement, will be better aligned with a variable rate account that doesn’t have a fixed term. Such a savings account will allow you to earn compound interest with a varying interest rate as years go by.
Access To Your Money In a Regular Saver
The rules regarding withdrawals vary depending on your current account. Some banks allow you to withdraw money, although it may affect your interest rate in the relevant months and the remaining time of the term.
Other accounts may not allow you to make withdrawals at all. Therefore, it is crucial that you investigate the account terms of your savings account before committing to an account, especially if you suspect you may need to withdraw money early.
Many regular savings accounts allow you to withdraw your money up to three times within the time of your term without affecting your interest rate. However, when you make four or more withdrawals, you’ll interest rate will be reduced for the remainder of the term.
Is A Regular Savings Account Right For You?
A regular saver account would suit your needs if:
Frequently Asked Questions
Can I open accounts with more than one bank?
Although regular savings accounts are ideal for those who want to save smaller amounts monthly, if you do have more to save, you can always open more than one regular saver. This is especially helpful if you are earning interest paid in the same bank that sets you over your Personal Savings Allowance. You can only have one regular savings account with a single bank, but you can place your money into more than one bank to benefit from the interest rate of each.
What happens when things go wrong?
Most countries have regulatory entities that handle any complaints regarding regular savings accounts. For example, in most UK banks that are entered in the Financial Services Register, the Prudential Regulation Authority and the Financial Conduct Authority are responsible for regulating banks, credit unions, and the building society. If you are having any problems, you can get in touch with the appropriate authority in your country.
Can you close your account at any time?
It would be wisest to keep your money saved for the entire duration of your fixed term to benefit from the interest rate. In most cases, you cannot make partial withdrawals, but you can close your account early. By doing so, most banks would allow you to receive interest earned in your individual or joint accounts up until the date of withdrawal.
Can banks change the interest rate on fixed rates?
No, the rate will likely remain fixed after your account opening is finalised.
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Evelyn Partners is an award-winning financial planning and investment company that builds on a heritage of more than 186 years. They have won numerous awards and their clients include private individuals, families, charities and professionals.
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