A money-saving expert has revealed a common mistake people make that could be costing them £500. It has been estimated that 71% of Brits don’t know how savings accounts work, and with the cost-of-living crisis, it’s more important than ever to save wisely
Antonia Medlicott, managing director of financial education specialists Investing Insiders, has revealed five common beginner saving mistakes. The first is not having a clear goal. She said: “When looking to save money, have a clear goal in mind (eg. a house deposit, an emergency fund or retirement). Saving without a purpose often leads to inconsistency, which can result in you giving up.” She said this allows you to choose the right type of savings account or ISA. For home savers, for example, this would be a Lifetime ISA (LISA). Antonia also said to consider setting a monthly savings goal, which could be a specific amount or percentage of your total earnings, depending on your income. She urged savers to be sure this goal is realistic, as “an unrealistic one can lead to demotivation, potentially derailing your saving journey”. The expert said another mistake is keeping savings in a low-interest account. It’s currently estimated that 28% of adults hold the majority of their savings in a no-interest account, which is especially common for young people between 18 and 24.
Putting the average savings of someone in the UK (£9,633.30) into a simple instant access savings account (2.26% interest), you would add around £220 a year for just leaving your money in a different account. Other accounts can offer much more than this – regular saver accounts offer up to 5.5%, which is the equivalent of £530.
Antonia also urged people not to ignore inflation and interest rates, saying: “If you put your money in a savings account where the interest rate is below the inflation rate, then effectively your money is shrinking.”
Instead, select a regular savings or ISA account that is above the current inflation rate of 3.8%. Regularly compare accounts and consider switching if it will earn your savings a more competitive interest rate.
The expert said that people often don’t utilise their ISAs, which allow you to earn interest completely tax-free, up to an annual limit of £20,000. Many leave their money in investment or standard savings accounts, not realising that they’re paying unnecessary tax.
Antonia said: “An ISA allowance should be a priority; every penny you put in it is pure growth as it avoids tax. A Cash ISA for short-term savings, a Stocks & Shares ISA for long-term growth, and finally a Lifetime ISA for either retirement or buying your first home.”
She added that people don’t account for fees. Some savings accounts and ISAs charge a penalty for withdrawing your money early, while other packaged accounts have an automatic monthly charge that can quickly add up and be more than the interest you earn.
To avoid any unwanted fees or losses, read the small print before opening any account. Don’t get sucked in by the interest rate; calculate the amount you will make, taking all factors into account. Packaged accounts include different benefits like insurance and travel perks, so also consider if you’d benefit from these.