It’s never a bad time to start growing your savings pot. Whether you’re starting from scratch or want to earn more from your existing savings, having a five-year savings plan is widely recognised as a beneficial way to grow your wealth.
- A five-year savings plan works for many savings goals, whether you’re saving for something specific or you just want to grow your wealth.
- Different savings accounts offer different perks and features, such as fixed or variable interest rates and various ways to access your money.
- Longer-term fixed rate bonds typically offer the most competitive interest rates.
Why a five-year savings plan is essential
Whenever you have a goal in mind, it’s usually beneficial to plan how you’ll achieve that goal. This approach is notably applicable to growing your savings. Having a savings plan should help you to stay on track and also help you monitor your progress. Because growing your savings is a long-term project, having a five-year plan can be the best way to set yourself realistic goals and help you stay committed to achieving your goal.
In the wake of the coronavirus pandemic, many people have seen their financial priorities shift. Unemployment levels have soared, creating concern about savings and income. That £9 previously spent on lunch might now seem excessive, and you may be considering putting together a rainy day fund to fall back on in the event of any unexpected financial shock or periods of unemployment.
With the UK’s financial future impacted by the coronavirus pandemic, ensuring your savings are safe is a top priority.
Save for the things that matter
When it comes to what you need to save money for, it could be anything from a rainy day or a retirement fund to being able to finally take that trip you’ve always dreamed of. The table below shows what people in the UK typically save their money for:
How to achieve your savings goals
Five years might seem like a long time, so it’s important to know exactly how to achieve your savings goals. Here are some things you can do:
From the beginning of your five-year savings plan, having a clear goal in mind will help you stay motivated and focused. Your goal could be to kick-start a retirement fund, save for a deposit on a house or to ensure that you are well-equipped to endure any unexpected financial shocks.
Start by creating a realistic goal that won’t put you in a difficult financial position. Having an exact number in mind will make it easier for you to take the next steps, such as finding the right savings account for you, and deciding whether to deposit a lump sum or make monthly contributions.
Create a timeline
A savings timeline of around five years might allow you to take advantage of competitive interest rates, but you should consider whether five years will allow you to meet your goal.
Choose a savings account that’s right for you
Before you start saving, it’s beneficial to get an overview of your finances and work out if you already have a lump sum that you can grow, or if you need to build your savings pot. If you’re starting from scratch, you’ll need to take a look at your budget and calculate how much you can afford to put aside after you’ve covered your essential outgoings.
There are many different types of savings accounts to choose from, each with different benefits and features, with the best interest rates often the top priority. Comparing the following types of savings accounts will help you identify the one that’s right for you.
Fixed rate bonds
Fixed rate bonds typically offer competitive interest rates for locking your money away for a fixed term, and the rate won’t change from the day you open the account to the day your term ends. This means you’ll be able to calculate exactly how much interest you’ll earn before you commit to opening the account.
With an easy access account, you can benefit from a much greater level of flexibility than a fixed rate bond, while still benefiting from competitive interest rates. A typical easy access account allows you to deposit and withdraw your money at any time, making this type of account ideal if you’re saving from scratch or simply don’t want the commitment of locking your money away.
Notice accounts are a great middle-ground option between fixed rate bonds and notice accounts, as you can open them with a lump sum deposit, but you can access your money by giving notice. Notice periods are typically between 30 and 90 days and you can keep a notice account open for as long as you want.
Whichever savings account you open, it’s important to ensure that your deposits are protected. At Raisin UK, your money is always protected, with savings accounts offered by our UK regulated partner banks featuring protection from the FSCS protection up to £85,000 per person, per banking group.
What could a five-year savings plan look like?
You might still be wondering why you would choose a five-year savings plan or how a five-year savings plan could help you reach your savings goals.
A great way to answer these questions is to figure out what a five-year savings plan might look like based on current market rates and where this is likely to get you, depending on what you can afford to save and whether you have any existing savings.
These examples of five-year savings plans will give you an idea of how you could save over this time-frame.
Let’s say you don’t have any existing savings, so you can’t start your five-year plan by depositing a lump sum. After reviewing your monthly outgoings, you find you can afford to put £250 away each month into an easy access account.
Easy access accounts offer variable interest rates. When you open your account, the interest rate is 1.2% AER, and after a year it drops to 0.4%, meaning that after five years you’ll have earned £7 interest.
At that point, you might consider opening a fixed rate bond to earn a more competitive rate of interest, making your money work harder for you. Based on current trends, it’s better to lock your money away over the longer term to earn a more competitive rate of interest.
You have a lump sum of £3,000 you can use to open a savings account. You also have £150 to deposit each month. If you deposit this initial amount and £150 per month into an easy access account with an AER of 0.4%, you will earn £170 at the end of five years.
You have an existing savings pot worth £10,000. If you deposit this as a lump sum into a 5 year fixed rate bond with an interest rate of 2.1%, you will earn £1050 over your five-year term.
When considering which savings account will help you meet your goal, it’s important to look at whether the interest rate is fixed or variable. By choosing a fixed rate savings account, you’ll benefit from a set rate of interest for your entire term so you’ll know exactly how much interest you’ll earn.
Don’t risk volatile savings account rates
With savings account interest rates much lower than they used to be, you may be wondering how you can work to a five year savings plan and achieve predictable results. If you have a lump sum to deposit, the simplest way to achieve your savings goal without having to worry about fluctuating interest rates is to open a fixed rate bond. A 5 Year Fixed Rate Bond will usually offer the most competitive interest rate, and you won’t have to worry about any rate changes during that time.
Why you shouldn’t leave your money in low-interest savings accounts
You’ve probably heard the saying “watch the pennies and the pounds will take care of themselves”, well, this phrase is common for a good reason, and it’s particularly applicable to savings accounts. Even when interest rates seem low, you’ll still earn money from savings accounts over time.
By shopping around for better interest rates than you’re currently earning or ensuring that your new savings account offers the best interest rate available to you, you’ll grow your savings faster. High-street banks aren’t always able to compete with challenger and specialist banks, many of which are online. As you can see in the graph below, online savings accounts are becoming more popular over time, and with the UK being subject to restrictions due to the pandemic, many find themselves banking online anyway.
Register for a Raisin UK Account
We’ve made online savings accounts easy with a user-friendly dashboard which allows you to view all of your accounts with partner banks. You can quickly and easily apply for savings accounts with attractive rates from a range of banks by registering for a free Raisin UK Account, which will also give you access to exclusive savings accounts and offers, including a welcome bonus just for opening your first savings account through our marketplace.
This article may contain information about partner banks, savings accounts, rates and bonus offers which were correct at the time of publication.