Half of all British savers stick to cash. But with interest rates at historic lows, is 2017 the year for a change? This page is dedicated to all Suspicious Savers. In 10 minutes we’ll give you no-nonsense independent ideas on Stocks & Shares ISAs, great savings apps and how to make sure you’re getting what you’re owed at work. Cash is pretty certain – you know the rate and what to expect. You don’t with the stock market. Over 5 years, you are 75% more likely to better in shares than in cash. In 2016, the main UK index rose by about 14%. But no-one can tell you what 2017 holds, or whether the market will fall. So it’s not a ‘short-term play’.
The stock market freaks people out. It’s risky. It feels like gambling for many. It’s hard to understand. We’re worried about getting fleeced. But for some people it’s actually the most sensible option for your long-term savings.
We promise promise promise that this doesn’t have to be as mind-bogglingly hard as the pie chart loving experts like to make out. Stocks and Shares ISAs are a very good way to think about saving for stuff over the mid- to long-term. Largely tax free, they make a lot of sense, and we’ve done the legwork for you, suggesting a few good ‘uns below. For shorter term emergencies, the predictability of cash makes it the sensible approach, although interest rates are dire so make sure you shop around.
- You can save up to £20,000 a year in a Stocks and Shares ISA and keep the taxman’s paws off the profits. But you can also typically get going from a direct debit of £50 a month online
- It is impossible to be specific about what you might make. As examples, over the last 3 years, Standard Life’s mid-range ISA has made an average of 7% a year and Nutmeg’s mid-range portfolio has returned an average 4.6% a year. Everyone will differ and it depends on how spicy you make the mix.
- ISAs are super flexible and you can get access to these funds whenever you want – it’s not locked away like a pension
- Choose a provider you like the look of and read about their returns
- Interest rates are lousy so make sure you shop around for the best deal if you are staying in cash – don’t just leave it in your current account!
In our latest research, we awarded Gold Best Buys to 4 providers – AJ Bell Youinvest, Fidelity, Hargreaves Lansdown and Nutmeg. Our Silver Best Buys went to Ageon Retiready, Aviva, Barclays, MoneyFarm, TD Direct Investing and Wealthify. And our Bronze Best Buys to Standard Life and True Potential.
Have a look at our criteria here.
If you struggle to save, load up your smartphone with the ultimate money saving apps, and you could start saving money in no time. Some apps just round up your change from card purchases and invest it. That’s smart.
Paraplanner Richard Allum has managed to save over £200 in 3 months without noticing. How? Read his review on how Moneybox helped him to save and invest to find out more.
Do you struggle to know how much you should be trying to save? How to fix a budget which will get you through to the end of the month without splurging it all? Adviser Adam Carolan’s blog, How to Plan Your Income, demonstrates a fairly simple system to help you maintain control over your money, with minimal work to set it up and continue with. It is all about the Three Buckets of Fixed, Savings and You.
- Interest rates are at historic lows – are cash ISAs really worth it these days?
- Try splitting your income into 50% bills, 20% savings and 30% you. What does that look like?
- Take the pay increase tip. When you get a pay rise immediately set up a direct debit for 20% to a savings account. You can’t miss what you never had!
So what’s all this auto-enrolment stuff about? Long story short, your boss will have to set up a pension for all their employees by 2018. No ifs, no buts. By 2019, you’ll have to stick in at least 4% of your earnings, your employer will pay in at least 3%, and the Government will sling in another 1%. So that’s 8% in total. The more you earn, the more you will save. You can decline this offer (it’s called ‘opt-out’), but it’s not a great idea because you’ll forfeit the 3% from your employer and 1% from the government. Free money.
You ask us how much this could be. Very roughly, a 40-year old today, earning a mid-range wage of £30,000 a year, can expect to have built up an account of about £140,000 by retirement age (including investment growth). OK, that sounds loads, but trade this lump sum in for a regular pension for life when you retire and it only translates to approximately £120 a week. These numbers are illustrative – everyone is different.
- The amounts are usually calculated on anything you earn over £5,824 (in the tax year 16-17) up to a limit of £43,000. This includes overtime and bonus payments. So, if you were earning £18,000 a year, your contributions would be a % of £12,176 (the difference between £5,824 and £18,000).
- The amount is slowly ratcheting up between now and 2019. The Government wanted to ease us all into this gently
- From April 2018 it will be about 5% of your qualifying earnings
- And from April 2019 onwards, it will get to 8% of your earnings (4% from you, 3% from your employer, and 1% as tax relief)
- As always with pensions there are loads of exceptions to the rule so check out what you’re entitled to with your boss or HR
- If you’re self-employed you might be left out of this ‘party’. It’s really important to think about setting up a DIY pension for yourself.
To find out more about how to get this “free money” from your boss, check out our Workplace Pension page.
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