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Saving money (Scotland)
This fact sheet covers Scotland. We also have a version for England & Wales if you need it.
This fact sheet explains how saving money regularly can help your financial situation. Use this fact sheet for tips on how to make saving easier and safer.
Why should I save money?
Saving money every month is an important part of dealing with your debts. This is because savings can help you to:
- keep on track with your budget;
- plan for future spending, such as for a yearly MOT or boiler service; and
- deal with unexpected emergencies, such as a household repair or the replacement of essential goods.
One of the first things you will be asked to do when you are dealing with your debts is to fill in a budget. This shows the amount of money that you have coming in each month (your income) and the amount you need to pay out each month for your essential living costs (your outgoings). Filling in a realistic and accurate budget will help you to choose the best solution for dealing with your situation, and keep to it.
While many outgoings are paid monthly, some are not. You might have outgoings that need to be paid yearly, half-yearly or every three months. These could be for costs such as replacement school uniform, a car service or gifts that you buy.
When you fill in your budget, you need to work out how much extra to add to your outgoings each month so that you can pay these occasional costs when you need to. By putting the ‘extra’ money to one side each month you can build up a pot of money to use throughout the year. This savings pot will help you to keep on track with your spending from month to month.
If you don’t save this extra money, you will probably find it difficult to pay all your monthly outgoings and your occasional outgoings as they become due. This could cause you to fall behind with essential living costs, such as your electricity payment, or be unable to buy items that you need to, such as a replacement school uniform.
Christmas saving tip
We often find that Christmas can cause problems for people who don’t have enough income to pay their outgoings and buy gifts. It can make this time of year very stressful. However, by budgeting and regularly saving throughout the year, you can build up a ‘Christmas fund’. This can help to reduce the financial stress of gift buying.
It is also important to save an amount in your budget for emergencies if you can. This is because most people are faced with an unexpected cost at some point. For example, if your vacuum suddenly stops working, you would need to pay to have it repaired or to replace it.
If you do not have any emergency savings, you may be tempted to use money that is needed for your essential outgoings, or have to do without an item that you need.
Our online budget includes a separate ‘Savings’ category. If you have money left over after you have paid your outgoings, you can add an amount for savings. By saving a monthly amount, you can build up an ‘emergency savings’ pot to use when an unexpected cost comes your way.
Most creditors will think it is reasonable for you to include a small amount towards savings in your budget.
- If you fill in your budget online, our budget tool will work out a reasonable monthly savings amount for you.
- If you fill in a paper budget, you will need to work out your monthly savings figure.
- If you are using the paper budget that we sent with our How to deal with debt guide, add the amount that you intend to save each month in the Other outgoings section of Your full budget.
Most creditors will think it’s reasonable if you save a monthly amount of up to 10% (up to a maximum of £25) of the money you have left over after paying for your essential living costs. So, for example:
- if you have £50 a month left over, you can save up to £5 a month; and
- if you have £260 a month left over, you can save up to £25 a month.
If you need help working out how much to put aside for savings each month, contact us for advice.
Keep your savings safe
Deciding how much you need to save towards your occasional outgoings and emergencies is just the first step. You also need to make sure that your savings are available for you to use when you need them.
Protect your savings from:
- becoming mixed up with your normal spending; and
- being used by your bank to pay towards a debt that you owe them.
Keep your savings in a separate account
If you keep your savings in the same account as your usual income, you may find that you lose track of how much money is for your savings and how much money is for your normal monthly spending. This can lead to you spending your savings without being aware of it.
To protect against this, open a separate account that is just for your savings. You can open more than one savings account if you want to. Some people find that having a separate account for each different type of savings helps them to budget.
Do what feels best for you and keep your savings separate.
Have a safe savings account
Make sure that any savings you have go into an account with a bank or building society that you do not owe any money to. This is because if you owe money to a bank or building society, they can usually take money from an account you have with them to pay towards the debt you owe them. This is called the ‘right of set-off’.
If your savings account is with a bank or building society that you owe money to, open a new safe savings account. Make sure that this is with a bank or building society that you do not owe any money to.
What to think about when opening or closing a savings account
Some types of savings accounts have rules about:
- when you can take your money out (for example, you may be allowed to take it out straightaway or may not be allowed to take it out for a set amount of time);
- how often you can take money out of the account; and
- how the interest that you have earned on your savings is affected if you take out your money earlier, or more often, than the rules allow.
If you are closing an existing savings account, check your agreement for any special rules. Remember to look out for any penalties that may be applied if you withdraw your savings.
If you are opening a new savings account, shop around for an account that suits you best. MoneyHelper can give you more information about the different ways of saving. Go to www.moneyhelper.org.uk and search for ‘Types of savings’, or call 0800 138 7777. Also have a look at the Help to Save section later on in this fact sheet.
Financial Services Compensation Scheme (FSCS)
Whoever you decide to save with, make sure that they are covered by the Financial Services Compensation Scheme (FSCS). This scheme is set up to protect you if your bank, building society or credit union runs into financial difficulty. For more information, go to www.fscs.org.uk/ or call 0800 678 1100.
How to save money effectively
Whether you bank online or go into your local branch to do you your banking, you can make saving easier. Set up a standing order with your bank, so that your money can be transferred automatically every month from your current account to your savings account.
If you set up a regular standing order, you won’t need to remember to transfer or pay money into your savings account each month.
- You can set up a standing order even if your savings account is with a different bank or building society to your current account.
- You can set the date that your money is transferred to your savings account. Many people have the money transferred just after pay day, so they don’t accidentally spend it.
- You tell the bank how much money to transfer to your savings account.
- You can cancel a standing order.
Make saving easier and contact your bank to set up a standing order.
Help to Save
The government has introduced a savings scheme called ‘Help to Save’. This can give you a 50p bonus for every £1 you save over a four-year period.
Help to Save is aimed at people who are on a low income and who are claiming certain benefits. To be eligible for this scheme, you need to be a UK resident with a bank account and either:
- get Working Tax Credit; or
- have a nil award for Working Tax Credit, but get Child Tax Credit; or
- claim Universal Credit with an income of at least £722.45 over the last assessment period.
If you live outside of the UK, you can also apply if you or your spouse or civil partner is a Crown Servant or a member of the British armed forces.
MoneyHelper has more information on how the Help to Save scheme works. Go to www.moneyhelper.org.uk and search for ‘Help to Save explained’, or call 0800 138 7777.