In the midst of austerity, building a savings pot is often touted as a sensible step. But don't confuse a healthy savings account with healthy finances: in some cases, your savings could be costing you money.
That's because focussing on the sum in your savings account doesn't give you a true view of your finances. You need to make sure your money is deployed effectively, and that means several things...
Managing your debt
Making regular deposits into a savings account is all well and good, but if any of your accounts are in the red, then all of your gains could be wiped out. Before making a deposit, check the balance of your:
- Credit cards
- Personal loans
- Extended payment deals
If any of these accounts are accruing interest on a regular basis, or you're being charged borrowing fees, you could be losing more by delaying repayments than you are gaining from the interest on your savings. And if that's the case, you should be diverting the savings deposits into debt repayments.
If you're struggling to keep track of your monthly outgoings and the amount of interest you accrue, use our free Money Dashboard budget planner to take the effort out of your personal finances. Our free, secure software automatically gathers your spending and saving habits, labels them by income/expenditure type, and produces all manner of handy graphs and charts to help you get a true view of where your money should be placed.
Consider lump sum repayments
Once your budget planner has shown up how much you could redeploy to clear your debts, contact your mortgage/loan provider and see if you can make extra payments. You'll be saving money in the long run.
You can also enquire as to whether paying off your mortgage or loan in larger amounts will open up better deals. Taking the time to compare loan and mortgage providers may offer more competitive interest rates, particularly if you've paid off a large amount of the outstanding debt, or rearranged your budget to allow for larger monthly payments.
Compare utility providers
While you're making the most of your clear financial view to source the best deal on your personal finance options, don't forget to check whether you're overpaying for gas, electricity or phone bills.
Often when we're putting money aside every month, we assume we're doing well. But complacency can wipe out all of your gains, so use our free price comparison tool to check whether you could save even more by switching.
Consider your investment options
If you've minimised your debt costs and still have money left over, it's vital to consider all the options available to you before committing to a savings account
Interest payments on savings are incredibly low at the moment, and even ISA interest rates are averaging a paltry 1.64% this year. So scout around for the best deal, and consider unconventional options like peer-to-peer lending with providers like Zopa or RateSetter to earn that extra percentage point.
For more ideas on how to save, check out our six ways to super power your savings.
Posted by Marc Murphy, Marketing Manager at Money Dashboard.