For people who find that they are left with a little extra cash after they have paid their monthly bills and made the payments on their secured loans, there are plenty of ways to make the most of the cash that don’t involve blowing it on luxuries or storing it in a jar at home.
If you have ever had to face an emergency that left you in a panic and just hoping that you will be eligible for one of the adverse credit secured loans to get you out of a financial hole, then it can be easy to see the benefits of saving when you can. The question is: what is the best thing to do with that extra cash? Here are some ideas.
Make Use of the Cash ISA Allowance
If you want to save, a cash ISA can offer you an opportunity to amass some funds whilst avoiding the greedy grasp of the tax-man. You could invest a maximum of £15,000 this year in an Individual Savings Account, better known as an ISA, without having to pay a penny in tax. You may need a minimum amount to open the account, and some providers require you to give notice if you want to take money out. If you do take money out, this will still count towards your annual tax-free allowance.
Alternatively, you could open a regular savings account, which will involve you committing to save a certain amount each month. This is usually between £25 and £250, and most of these accounts will not let you withdraw your money during a set period – normally a year. For the best deals, it is often wise to go with the same provider that you have your current account with.
Before opening a dedicated savings account, however, it is worth checking that you won’t get a better rate just by keeping money in your current account. Of course, this does carry the risk that your savings will get frittered away, but if self-control is not an issue, then it can be a wise move. Often the best accounts will require that you pay in a minimum amount of money each month.
The idea of spending to save may sound strange, but it can actually be a good idea. You could use your credit card, earn cashback and then use your extra money to pay off the balance to avoid paying unnecessary interest charges. Another seemingly odd idea is to pay more than you have to on your utility bills, but this can be a great way to save. If you pay more for energy during the summer months, for example, it can leave you with valuable money to spare when the more expensive winter months come around.
You could also choose to pay more than the minimum on your mortgage. You may earn a small amount of interest by putting your money in a bank account, but you could save much more on interest payments on your mortgage. The majority of lenders will let you pay back ten per cent more on your mortgage each year without charging you a penalty.
If you find yourself with a reasonable amount of money left over and you have your short-term future covered, how about planning for your pension years? You will be eligible for tax relief on pension contributions – the equivalent of saving 20p for every pound of tax you pay if you are on the basic rate. This could rise to as much as 40p if you pay the higher rate and 45p if you fall into the additional rate band.
You could also buy Premium Bonds. Not only will your capital stay safe, but you’ll also be giving yourself the chance to win £1 million and a host of other tax-free benefits every month. You can invest up to £40,000 in premium bonds – and you could win even more.
Another way to invest is via the stock market. Gone are the days when this option was only for the super-rich. There are now many ways that the ‘ordinary’ man or woman can invest. One of the best options is through an ISA for stocks and shares. You will have to invest a minimum amount each month, but this can provide the safest option, as it lets you invest more when the prices are down and less when they are up.