Five Ways to Save for a Rainy Day

The European economic crisis has meant saving has not been easy for many in the U.K. In fact in 2011, it was reported that a fifth of Britons admit to having no savings whatsoever while only just over a third of adults had less than £500 put aside for a rainy day.

A research by the consultancy firm Mintel shows that women are least likely to have that all-important nest egg. About 17% men, nearly a quarter (22%) of women and as many as 22% families admit to having no savings at all.

The findings paint a grim picture of millions of households unprotected by even the smallest of financial cushions as they struggle to cope with the everyday cost of living in tough economic conditions.

Uncertain economic and political climates urge us to save money for both short-term and long-term. There are several things you can do to save for a rainy day.

Regular Savings Account: The easiest option is to open a savings account with the same provider where you have your current account. This way you can directly transfer some amount of money into your savings account, which will pay a better interest rate. However, the disadvantage is that you have to pay income tax on the interest you earn on your savings depending on your tax bracket.

Individual Savings Account: Instead of going for a regular savings account, you can also think about opening an individual saving account (ISA). These accounts are popular because of their tax saving feature. You can either have a cash ISA or a stocks and shares ISA. With cash ISA, you can earn a better interest rate than a normal savings account, and the interest earned is tax-free. You can choose to either make regular payments or a lump sum for the whole year.

Fixed Rate Bonds: Fixed rate bonds are another way of saving money for short-term.  These bonds, as the name suggests, provide a fixed rate of interest, and are usually offered for a period of one or two years. You cannot withdraw your money during the term of the bond as it involves penalty. Therefore, these bonds are a good option if you don’t need to access your money immediately. A disadvantage is that if the market interest rates rise, you will still get the fixed interest rates from these bonds.

National Savings and Investments: You can also consider National Savings & Investment (NS\&I) Accounts. The government owns these and your money is absolutely secure. There are a number of financial products to choose from based on your saving needs, such as Premium Bonds and Income Bonds. Some products such as NS\&I Premium Bonds are tax-free while others such as Income Bonds and Investment Bonds are taxable. For most of these bonds, the money can be withdrawn anytime. There is no notice or penalty.

Stock Markets:  If you want to earn more on your money, then you also have the option to invest in stock markets. Stock markets can offer better income but is also more risky, and require you to have some understanding of how the market functions. You can either invest directly in individual stocks, or go for a pooled investment fund such as a unit trust or an investment trust.

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