5 things to do with your savings

Whether you’re one of the many people who spent the last year squirrelling away money unspent during lockdown or have recently taken control of your spending and have funds left over, knowing what to do with your savings can be tough. To help you decide, here are five things, in order of importance, you can direct your money towards.

Pay off high-interest debt

The first thing you should ever do when you have extra money left over is pay off ‘bad’ sources of debt. This includes debt such as credit cards, personal loans, legal judgments, payday loans, and other financial liabilities that will cost you more the longer they’re unpaid. 

Some debts are less pressing, however. Student loans, for instance, operate more like a tax than debt and are wiped after a few decades anyway. Mortgages depend on your deal – you may wish to use savings overpay on your mortgage, but might feel that money is better invested, for example.

Start an emergency fund

We never know what life might throw our way, so to protect yourself against losing a job, economic worries, or any other rainy day, start an emergency fund. There’s no clear rule on how large yours should be – some people are happy with three months’ expenses saved, while others amass a year’s worth. 

In the end, it’s all down to your attitude to risk, and in the case of job loss, whether your skills are in hot demand.

Open a savings account

Savings accounts are good for two things. First, instant access savings accounts you can access at any time are a sound choice for your emergency fund – letting you get the cash you need, the moment you need it. 

Second, they are good for putting money away, risk-free. In the UK, accounts holding up to £85,000 are covered by the government, so if the bank goes under, you get a refund. And because the funds aren’t tied to stocks, if the economy goes through a rough period, you won’t lose money. The trade-off is low-interest rates, which have dropped hugely over recent years.

Buy a big-ticket item – smartly

Plenty of people use savings as a means of purchasing expensive items like technology or a vehicle. Even here though, you need to spend smartly. Take your time to research best buys. It can be worth subscribing to the consumer-goods testing organisation Which, for a limited period – or access back issues at your local library. 

It is also worth having a plan to deal with potential shock maintenance bills. For instance, if you’re in need of a car, or use one regularly and fancy an upgrade, scour the net for good deals. Then, consider getting supplementary warranty insurance so you can keep your car – and your wallet – safe from excessive maintenance costs, should the worst occur.

Start investing

If you want more bang for your buck and are happy taking a more risk-friendly posture with regards to your saving, start investing your money. This can be done on a sliding scale. At the less risky end, there are index funds that you buy into. These combine lots (often thousands) of different low-risk bonds and riskier stocks, and don’t need to be monitored too heavily. 

On the other end, you can purchase individual company stocks, or other more complex financial instruments like CFDs. The potential returns are significantly higher, however they are much riskier. That’s because buying single stocks means your money is not diversified (all your money is in one place), or in the case of CFDs, you can end up owing money.