Many people use the beginning of the year to set out their personal goals for the 12 months ahead. It’s also a good idea to do the same for your finances.
With that in mind, today I’m going to explain the four ways I plan to increase my savings in 2020.
Switch banks
First of all, I’m planning to make the most of the current offers on the market for savers looking to switch bank accounts.
Several high street banks are currently offering cash rewards for switching current accounts, and some of these also provide linked savings accounts with attractive interest rates, as well as cashback on spending.
For example, First Direct is currently offering new customers £100, and you can also open a linked 2.75% regular saver account.
Open a LISA
As well as switching bank accounts, I’m also going to open another LISA in 2020.
Introduced several years ago, LISAs are designed to help first-time buyers and pension savers. For every £1,000 you contribute, the government gives you a top-up worth 25% or £250. You can put away a maximum of £4,000 a year, providing a potential bonus of £1,000 of government cash.
Open a SIPP
LISAs are not the only product that offers government cash bonus. Any contributions to a SIPP also receive tax relief at your marginal tax rate. So for basic rate taxpayers, for every £80 contributed, the government will top up your contribution by £20.
You can only withdraw money from a SIPP after the age of 55, so it is not suitable for everyone. But it is a great tool to use if you are struggling to save for retirement.
Start investing
All of which brings me to the fourth and final strategy I plan to use in 2020 to increase my savings — and that is to invest more. 2019 was a bumper year for stock markets around the world, and many analysts believe that barring a sudden economic shock, 2020 could be a good year for investors as well.
In the current interest rate environment, investing is a great way to get your money working harder. Over the past 110 years, UK stocks have produced an average annual return in the region of 5.5% after taking into account the impact of inflation on returns. At the time of writing, even the best savings account on the market offers a negative real return (after taking into account the impact of inflation).
One of the best ways to take advantage of these returns without spending hours analysing individual companies is to buy a low-cost market tracker fund. A FTSE 100 or FTSE 250 tracker fund is an excellent way to track the market at a low cost. Most tracker funds charge less than 1% per annum in management fees.
When combined with the tax-free cash available with LISAs and SIPPs, these low-cost funds can be a potent tool. For example, over the past 10 years, the FTSE 100 has produced an average annual return for investors in the region of 7%.
By opening a LISA and taking advantage of the government’s full £1,000 cash bonus, this suggests that you could grow your initial £4,000 investment into £5,350 in the space of just 12 months.
