How to save for a car: Everything you need to know

Buying a new car can be expensive, and even the prices of used cars have risen significantly over the past few years. Instead of opting for a car loan and paying interest, it’s often better to consider saving up for a car. On this page, you’ll find out how to save up for a car, how much you might need, how long it could take, and why opening a high-interest savings account is one of the best ways to save for a new or used car.

With the price of a used car averaging  £17,641* (October 2023), buying a car is a big financial commitment. Of course, the type and age of the car you want to buy will dictate how much you’ll need to save.

If you’re thinking of saving up for a car, it’s important to identify your savings goal first. Will you aim to save the full amount, or will you save enough for a deposit? With deposits typically amounting to around 10-20% of the car’s total purchase price, for instance, this would give you a specific goal to work towards. If you set your monthly savings target too high, it can be difficult to maintain it, so you could first set your target to an amount you’re comfortable with and then add more every month if you’re able to.

It can help to factor in long-term expenses such as insurance and fuel costs when you’re working out how much to save for a car. Fuel expenses depend on the car’s fuel type and consumption. You might also include vehicle tax and potential parking fees in your “saving for a car” budget.

When it comes to saving for a car, beginning the process early can make a significant difference. The earlier you can start, the more you can save for a down payment that can lower the overall cost of buying a car. You could also consider cutting down on expenses, such as eating out and frequent coffee runs, so you can increase your monthly savings. If you’re wondering how to save money for a new car more efficiently, consider opening a savings account, especially one offering a fixed interest rate, as it can help you maximise your earnings and streamline your financial goals.

What is the best savings account for a car?

When considering how to save for a car in the UK, it’s important to compare different types of savings accounts to find one that suits your needs and savings target. For example, you might want a flexible savings account that allows you to access your money when you need it, such as an easy access account. Alternatively, if you have a lump sum that can be set aside for six months or more to earn a competitive rate, a fixed rate bond might be better for you. Fixed rate bonds come with the advantage that you won’t be tempted to withdraw your funds, making you more likely to achieve your car savings target by the end of the term.