If you’re managing to find some extra cash at the end of each month, be that due to an unexpected windfall, an increase in your earnings, or careful budgeting, deciding what to do with your money isn’t always easy.
In the current climate of rising costs and an uncertain economy, you might be more inclined to maximise your savings than go on a spending spree.
There are various ways to save and it’s worth exploring all the options to find out which offers the most value to you in the short, medium and long term.
Most people default to boosting cash savings when they have spare money. According to recent research by Standard Life, savers are three times as likely to top up cash savings than their pension.
While this might seem a sensible option with interest rates hitting decade-long highs, it might be worth considering long-term options, such as pensions and investments, that may deliver a higher return.
Read on to learn three practical ways to make the most of your spare cash and build a healthy savings pot for the future.
3 ways to get the most out of your extra cash
1. Top up your savings
If you’re keen to save for shorter-term goals, want to build up an emergency fund, or want to retain easy access to your money, you could use spare cash to top up your Cash Individual Savings Account (ISA).
An ISA offers a tax-efficient way to make the most of your savings. You can add up to ÂŁ20,000 in the 2023/24 financial year without paying any Income or Capital Gains Tax on the interest you receive.
If you need to dip into your savings, you can usually make withdrawals at any time.
As the cost of living crisis continues, ISAs offer a valuable way for you to make the most of tax-efficient savings. Indeed, a recent report by Money Marketing revealed that more money was deposited in Cash ISAs in the first three months of this tax year than in any other period since ISAs were launched in 1999.
In addition to ISAs, if you can afford to lock your money away for longer, you could take advantage of the higher interest rates currently available to savers.
In response to soaring inflation rates, the Bank of England has repeatedly raised the base rate since late 2021. This is great news for savers, with some banks and building societies offering interest rates of 6% or more.
However, most of the accounts with the highest rates of interest have restrictions on the number and frequency of withdrawals you can make. So, if you’re relying on your savings as an emergency fund, check the terms and conditions carefully before opening an account.
2. Increase your pension contributions
It’s sensible to have some cash reserves to draw upon if unexpected costs arise – as a rule of thumb, three to six months of your salary is a good backup fund.
But, once you have put this aside, you might want to consider longer-term savings options. A pension is a great way to save for your retirement.
The money you pay into a pension scheme is invested by your pension provider, which means that your savings pot could grow over time. And, if you have a workplace pension, you’ll also receive contributions from your employer that will further boost your fund.
Furthermore, your pension contributions benefit from generous tax relief. If you are a basic-rate taxpayer, every time you pay into your pension pot the government tops this up in the form of tax relief, so every £1,000 contribution only “costs” you £800. Higher- and additional-rate taxpayers benefit from additional relief.
You can usually save up to ÂŁ60,000 (or 100% of your earnings) in 2023/24 before additional tax charges apply. If you are a higher earner or you have already started flexibly accessing your pension, then this limit may be lower.
Increasing your monthly pension contributions could potentially have a significant impact on your retirement income. According to Standard Life research, boosting your contributions by just 1% from the age of 45 could add ÂŁ25,000 to your pension pot.
3. Boost your investments
If you’re new to investing, there’s a lot of complex jargon to get your head around. But with professional advice, you could give your savings a real boost.
DIY investing can potentially lead to costly errors. So, if you’re interested in using some of your spare cash to build an investment portfolio, but lack relevant experience, seeking help from a financial planner can be beneficial.
We can act as an objective sounding board, offer expertise, and help you to ensure you take the right amount of risk for you.
If you’d like to explore your savings, pension, and investment options, please contact us by email at info@lloydosullivan.co.uk or call 020 8941 9779 to see how we can help you.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
Production
