Rainy-day savings accounts
Money experts have always talked about saving for a rainy day. Now the impact of the coronavirus pandemic has highlighted the need to have a savings pot put aside to help you through tough times.
Money experts have always talked about saving for a rainy day. Now the impact of the coronavirus pandemic has highlighted the need to have a savings pot put aside to help you through tough times.
Why you need to save for a rainy day
The coronavirus pandemic has up-ended many people’s finances, with jobs lost and incomes slashed. Government schemes have helped, but it’s been a considerable shock for many of us and those with a rainy day fund have been glad of it. Unforeseen events happen, and the coronavirus situation underlines the need to have something put away for when they do.
It’s not just about losing your job; having a rainy-day fund can help with life’s emergencies, from fixing a broken washing machine to paying for expensive dental treatment.
It can also cover expenses for happy occasions – like buying a new wedding outfit or paying for a school trip for the kids.
How much have people got saved?
According to the Financial Conduct Authority’s Financial Lives Survey, very few UK adults have cash savings. According to the survey, one in eight adults in the UK have zero cash savings to speak of, and one in every three only have savings of between £1 and £1,999.
Experts recommend having enough money to cover three months’ worth of essential outgoings in an instant access savings account, so you can get your hands on the money straightaway if you need it.
Start your emergency savings fund
You have to start somewhere, even if it’s just putting a few pounds into a savings account. Even better, get into the savings habit by putting aside money regularly. You could set up a standing order or Direct Debit to your savings account, with the money going out on pay day so you don’t even miss it.
You can also look at how much money you have left at the end of the month and top up your savings account with a little more. Some bank accounts will sweep your ‘surplus money’ into a savings account. This can also be a way of topping up your emergency fund until you’ve reached your savings goal.
Instant access accounts are the best fit for emergency savings. Your money won’t be in your current account tempting you to spend it. And it won’t be locked away for a set period in a fixed rate account. You may even be able to earn some interest on it, too.
Choose the right savings account for your emergency fund
With interest rates low at the moment, you should make sure you’re getting the most from your instant access savings account.
Check out details of the accounts. There are some notice savings accounts that pay just a little more but have conditions – such as being able to only make a set number of withdrawals in a year.
You can open some accounts with just £1. Many accounts can be managed entirely online, while others can be opened in a branch or by post.
If you’re saving regularly
As well as checking out instant access accounts to see which are paying the most interest, it’s also worth looking at what regular saver accounts are paying.
Often banks and building societies will have a regular saver account where you can save a maximum every month, typically around £200-£300. These pay a much higher rate of interest than an instant access account. Typically, some of the best-paying accounts are only offered to customers with a current account with that bank. See what your current bank is offering. If the interest is worth it, you could think about switching.
Regular saver accounts may also have other strict conditions which you need to know before you sign up for one. These can include:
- a requirement to pay in every month
- a limited number of withdrawals allowed each year
Reaching your rainy day target
Enough money saved to cover three months of outgoings should be the minimum target for your emergency fund. But you might want to aim to save up to six months’ worth of outgoings.
Once you’ve reached your target, you’ll be in the enviable position of thinking about what to do next to secure your financial future. You might want to put your extra savings into an account that pays more in interest, or top up your pension or invest to increase your wealth.
It’s also worth remembering to make sure all your savings are protected by the Financial Services Compensation Scheme.
