Saving for the future can be a chore. However, putting money away for a rainy day is something everyone should be doing because we just don’t know what is around the corner in life.
With that in mind, if you’re worried that you might not be saving enough, here are my four tips to help you boost your savings this year.
Open a LISA
The easiest way by far to quickly boost your savings by 25% is to open a Lifetime ISA, or LISA for short.
The government tops up LISA contributions by 25% up to a maximum of £1,000 per year. This means you could potentially boost your savings by 25% in just a few days if you’ve not already opened a LISA for the 2019–20 tax year.
The government bonus is paid monthly and the maximum amount you can save in an ISA every year is just £4,000 (£5,000 including the bonus).
Ditch low-interest accounts
My second tip is to ditch any low-interest savings accounts. If you shop around, there are still some relatively attractive deals on the market for savers.
For example, the First Direct regular saver pays 5% AER fixed for one year, although if you make any withdrawals during the year, the interest rate falls substantially.
If you are looking to make regular withdrawals, the Marcus account pays 1.45%, including a fixed 0.1% bonus for 12 months.
Switch banks
Another great way to boost your savings this year is to switch bank accounts because a handful of banks are currently offering a cash bonus for account switchers.
HSBC and NatWest are offering £175 and £150 respectively. Meanwhile, First Direct is offering £50. That’s excluding any cashback or packaged account offers.
If you switch to HSBC, pick up the £175 bonus, and then put this in a LISA, with the government contribution included, you could boost your savings by £220 with almost no work.
Start investing
My final tip to boost your savings this year is to start investing. With interest rates where they are today, savers have few options when it comes to choosing where to store their money. The stock market offers a great alternative.
For example, at the time of writing, the FTSE 100, the UK’s leading blue-chip index, supports an average dividend yield of 4.5%. Single stocks in the index offer much bigger returns, with some offering dividend yields of as much as 10%.
If you don’t think you would be comfortable investing in stocks, then bonds might be a better option. Bonds are less volatile, but still offer more income than most savings accounts today. According to my research, there are a handful of bond index tracker funds with distribution yields of 3% or more on offer in the current market.
The difference this extra income will make to your savings pot over the long term cannot be understated. According to my figures, £1,000 invested with an interest rate of 1.5% will be worth just £1,162 after 10 years.
The same £1,000 invested in the FTSE 100 with a yield of 4.5% would be worth £1,567 excluding any capital growth. In reality, the FTSE 100 has returned an average of 7% per year over the past decade, including capital growth. Using this rate of return, £1,000 would grow into £2,001 after 10 years.
So, those are my four tips to help you boost your savings this year.
