Cash, savings and investing: Making the most of your mONEY

Cover the bases, then branch out

Your day-to-day current account is obviously there for your basic needs and outgoings such as food, bills and your mortgage, as well as the fun stuff like nights out and hobbies. It’s easy to get to and, if you’re still earning an income, the best place to access that regular in-take of cash.

Then, it’s good to have an emergency fund for anything unexpected – money set aside you can get to quickly should you suddenly need it. This could bring you peace of mind and mean you don’t have to dip into your longer-term savings when you need a lump sum immediately.

Keeping your money ‘as cash’ – or within a deposit account – does of course still see it earn a little extra. The UK three-month average deposit rate, according to data provider Refinitiv, shows that, in the five years up to 28 April 2023, cash returned 1.6%, and 4.1% over 10 years*.

How much should you set aside for emergencies?

Try to work out your average monthly spending on your daily needs and what’s important to you – any bills, other regular payments, and how much you want to have handy to simply enjoy life.

Colin Jones, Coutts financial planner, says, “While each person’s own circumstances should always be taken into account, we generally recommend having at least six months’ worth of your expenditure in an easy-access savings account. It should certainly never be less than four months’ worth.”

Fixed term savings for the big costs coming up

With this done, a fixed term savings account – something that isn’t instant access but could help grow your wealth – may be good for the things you know you’ll need over the next few years. It may be an upcoming tax bill, home improvements or an expensive holiday.

Colin says, “It can make sense to save this money somewhere that pays higher interest than your current account. It builds up nicely so that, when the time comes to pay up, you can do so and find yourself with a little extra.”

What about investing?

With your daily spending, emergency funding and more immediate saving needs addressed, it could be worth investing for the future – for where you’d like to be in five or 10 years, maybe even longer. Investing should very much be used for your long-term goals.

It has the potential to increase the value of your money over many years, even keeping it ahead of rising prices.

Take the MSCI All Countries World stock index as an example. It’s returned 58.3% over the last five years – as at 28 April 2023 – and 165.1% over 10 years (in sterling, with income reinvested)*. It’s always worth remembering, though, that past performance should not be taken as an indication of future performance.

Also, you should only consider investing any extra money you have over and above your other needs. The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in.

* Source: Coutts, Refinitiv, May 2023