How to reach your savings goal

Most of us have a reason to save, whether it’s a deposit for our first home, Christmas, kids’ university fees or our own retirement years.

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Whatever your savings goal, it’s important to make sure your money is working as hard as possible for you so that you can achieve your financial aims sooner rather than later.

The best place to put your money will depend on whether you’re saving for a short, medium or long-term goal. Our savings calculator is designed with this in mind and is a great place to start.

But below, we've also highlighted the best accounts, whether you're saving for the short, medium or long-term.

Short-term savings goals

If you want to build up some savings to cover this Christmas, or a holiday you’re going on in the next few months, then you’ll need an account that enables you to get your hands on your cash quickly – in other words, an easy access account.

Rates on easy access accounts are not great at the moment, but at least there’s plenty to choose from and you can get a higher return if you choose an online-only account.

The current market leading easy access account, for eample, is Britannia’s Online Select Access Saver 3 account, which pays an annual equivalent rate (AER) of 1.75% on a minimum investment of £500. If you haven’t got that much to put away, then Coventry’s Online Saver account pays 1.60% AER on a minimum investment of £1.

Another alternative is Sainsbury’s Bank’s Extra Saver account, which pays 1.30% AER on a minimum investment of £1.

Consider current accounts too

Don’t forget about current accounts either, as some of these pay really competitive rates of interest when you’re in credit. Santander’s 123 account, for example, pays 1.00% AER on balances from £1,000, rising to 2.00% on balances from £2,000 and 3.00% on balances from between £3,000 up to £20,000. You won’t receive any interest on balances below £1,000. You must pay in at least £500 a month into Santander’s 123 current account to earn interest, and set up two direct debits.

Another option worth looking at is the Nationwide FlexDirect Account which pays 5.00% interest balances up to £2,500 for the first 12 months.  You'll need to pay in £1,000 or more a month.

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Regular savings for goals a year off from now

Another option worth considering if your savings goal is a bit further away, such as next year’s summer holiday, is a regular savings account. These require you to pay in a set amount every month for a period of 12 months, and you can’t usually make withdrawals during this period.

First Direct’s Regular Saver account pays an impressive 6.00% AER if you pay in between £25 and £300 a month, but you must be a First Direct 1st Account customer to apply. You cannot get access to your money until the account converts to a savings account paying 0.05% after 12 months.

Alternatively, Barclays’ Monthly Savings account pays 3.25% AER on a minimum monthly investment of £20. The maximum amount you can pay into this account is £250 a month. You can get instant access to your savings, although you will earn a lower rate of 3.03% AER for months when you make a withdrawal.  Bear in mind too that you can only open or operate the account online or by phone you need to have a Barclays current account, otherwise you must operate it in-branch.

Medium-term saving goals

If you have a savings goal you are hoping to reach in the next three to five years, for example you are saving to get on the property ladder, or need to pay for a wedding, or because you simply want to build up an emergency fund, then your first port of call should be a cash individual savings account (ISA) as returns are tax-free.

Nationwide Building Society currently pays 2.00% AER on its Easy Saver ISA (Issue 2) account, which can be opened with just £1. The maximum you can invest in a cash ISA this tax year is £5,760.

However, the Nationwide rate includes a 1.50% bonus which is only payable until the end of November next year, so if you’re saving over this kind of period, you’ll need to move your money to an alternative ISA once the bonus disappears.

Alternatively, Tesco Bank’s Instant Access Cash ISA pays 2.00% on a minimum investment of £1, while Cheshire Building Society pays 1.70% AER on a minimum investment of £1,000. This rate includes a 1.20% bonus until the end of January 2015, so if your savings goal is later than this date, you’ll need to move your cash when the bonus goes.

Fixed rate bonds

Savers who already have a decent lump sum which they want to grow over the next few years might want to consider a fixed rate bond if they’ve already used this year’s ISA allowance. As a general rule, the longer you are prepared to tie your money up, the better the returns you can expect.

For example, the market leading one-year fixed rate bond from Britannia pays 2.03% AER on a minimum investment of £1,000, while if you lock your savings up for five years with Shawbrook Bank, which currently offers the market-leading five year bond, you can earn 3.00% AER, although you need a lump sum of £5,000 to open this account.

Other competitive fixed rate bonds include Halifax’s two-year Fixed Online Saver account, which pays 2.10% AER on a minimum investment of £500, and Aldermore’s 3 Year Fixed Rate account which pays 2.40% AER on a minimum investment of £1,000.

Consider peer-to-peer lending

Another option worth thinking about for savers in search of competitive returns is peer-to-peer lending. Peer-to-peer lending enables savers to lend money and earn higher returns than if they put their money into a bank or building society savings account.

This kind of scheme has really taken off in recent years. RateSetter.com, for example, has just announced that it has now arranged a massive £100million in loans, and August is set to break £10million lent in a single calendar month for the first time.

However, bear in mind that unlike deposit accounts, money invested through peer-to-peer lenders is not protected by the Financial Services Compensation Scheme which covers you for the first £85,000 of savings, although borrowers are vetted very carefully and most schemes have provision funds which lenders can claim from if any payments to them are missed.

Long-term savings goals

It’s always a good idea to save for the longer-term, as expenses often have a way of creeping up on us sooner than we expect. You might, for example, have young children and want to save towards their university costs, or you may want to build up a savings pot to help fund your retirement.

However, with inflation high, leaving your money in a savings account over a long-term period will result in the purchasing power of your cash being eaten away, so you might want to consider higher risk investments such as a stocks and shares ISA.

If you’ve already invested in a cash ISA, then the maximum you can pay into a stocks and shares ISA this year is £5,760, or £11,520 if you haven’t used your cash ISA allowance. Do plenty of research before investing, and if you’re not sure which funds to go for, seek independent advice before proceeding. Remember that shares can go down as well as up, so you might not get back what you put in.

Retirement saving

If you’re saving for retirement, and have access to a company pension scheme into which your employer makes contributions you should join it as soon as possible. The biggest benefit of pensions is the valuable tax relief they offer. If you are basic rate taxpayer, you save 20p in tax for every pound you make in pension contributions, rising to 40p in tax for every pound you contribute it you are a higher rate taxpayer.

But remember that under current rules, you won’t be able to draw from your pension until you reach the age of 55, so if you think you’ll need your money earlier than this, tax-free ISAs may be a better option as you can get hold of your money whenever you want.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct

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