The wrong savings choices are as dangerous as ‘No savings’

The wrong savings choices are as dangerous as ‘No savings’
Date
18th August 2022

The wrong savings choices are as dangerous as ‘No savings’

“Every decision brings with it some good, some bad, some lessons, and some luck. The only thing that’s for sure is that indecision steals many years from many people who wind up wishing they’d just had the courage to leap.” Doe Zantamata

Saving is essential because sometimes life throws unexpected curveballs such as redundancy, medical expenses for trials if all other treatment options fail, funeral costs if a loved one dies suddenly, and savings become more vital than ever if a crisis occurs. Saving is crucial for reaching lifetime goals such as purchasing a first car or a deposit on a first home. Therefore, we have put a short guide on different saving choices and the risks involved with making the wrong decision.

There are several ways people may choose to save or invest their money, as this article will go on to explain:

Lifetime Stocks and shares ISA

Lifetime stocks and shares ISA could be ideal for 18–39-year-olds, including a 25% bonus from the government. The highest amount that can be invested each year is £4,000. The maximum quantity you can receive from a bonus is £1,000 per year; you will also receive a bonus for any savings you make before you reach the age of 50. It is important to note that investments in the stock market should be viewed as long-term investments regardless of investment type or who manages the account. Many investment experts advise investing for at least five years. If you cannot commit because of the risks involved, such as losing part of your investment, then a saving account may be more suitable as the risks are reduced.

Property Crowdfunding

What is Property Crowdfunding?

Property crowdfunding is a property investment that gathers the funds of numerous investors and puts them together to buy property or lend to developers as loans or fund property developments. Generally, investors give a small contribution to the total cost.

Property crowdfunding can be advantageous for many reasons, as it’s a quick way of getting a substantial amount of money; this is also beneficial because investors can contribute smaller amounts while having access to deals, they would not usually have access to.

Investment ISAs

An individual savings account (investment ISA) is tax-efficient and allows savers to buy, sell and hold investments. Typically, when you invest, you must pay tax on income or capital gains you get from investments. However, with ISA, with regulated and accredited providers, you will not be taxed on capital gains and pay as long as you follow their regulations.

ISAs are tax-free, so any gains you get from investments do not need to be included in your tax return. Therefore, tracking capital gains with ISA is a thing of the past; furthermore, if all savings and investments are in ISAs, you will not have to fill in a tax return form.

Cash ISA are savings accounts that do not require you to pay tax on the interest you receive. The options available include fixed-rate and instant access. With a cash saving account, you will not need to deposit large amounts of money with cash ISAs.

Cash ISA continues to have a £20,000 limit for the tax year of 2021/22; this account will also give you tax-free interest on your savings. You can open one cash ISA per year; however, you can transfer to another Cash ISA or a stocks and shares ISA with a different provider during the tax year. Some cash ISAs are flexible as they will allow you to withdraw and replace money from ISA, which will not decrease your monthly allowance as long as you have done this within the same tax year. And will not have to affect your current ISA allowance. It is essential to consider that not all cash ISAs will allow you to have this type of flexibility with your account, so find out with your provider whether your ISA offers this flexibility. Lifetime Isa and Junior Isa do not have this benefit at present.

There are a few disadvantages to Cash ISA, such as the fact that you will not be able to update your annual limit unless you have a Flexible ISA, as a Flexible ISA will allow you to withdraw money and replace the funds without this having a negative effect on your allowance.

Saving accounts

Saving accounts are interest-bearing accounts that are available in banks or financial institutes. The interest rate on these accounts is usually appealing to savers. The benefits of a saving account are having the security and dependability of having money in a saving account. Saving accounts is one of the least risky and convenient ways to increase funds.

Saving accounts, however, have decreased in popularity for several reasons, such as historically low-interest rates and the fact that there are several new ways to invest, such as cryptocurrency. However, interest rates have increased in recent times as the base rate is currently 1.75%; therefore, this could be an ideal time to have a saving account or bond.

The importance of making the right decision

It is vital to make the right saving choices because if you make the right decisions regarding finances, your money could bring you through financial burdens that may occur. However, if the wrong financial decisions are made without thorough research, you could end up investing in something that could lose you your investment which could be pretty costly if an emergency happens, and you need the money you invested.

However, people have different appetites for risk; and some investments carry more risk than others whereas some people are willing to invest even though they know they may lose their investment, others are not so willing to make investments that involve a significant risk which is why it is crucial to make sure you have read all the terms and conditions and done your research to make a more informed financial decision.

Furthermore, making the wrong financial decision, such as choosing the wrong savings account, which also mean that your money is not generating as much interest as it could, and you might end up paying penalties for an account that is not entirely fitting your needs.

Jillian Michaels once said:

“Whenever you’re making an important decision, first ask if it gets you closer to your goals or farther away. If the answer is closer, pull the trigger. If it’s farther away, make a different choice. Conscious choice making is a critical step in making your dreams a reality.”

Making decisions can be challenging as a decision made today could either provide fruitful results, have no effect on your lifestyle or have a diverse impact on your situation. Nevertheless, if a leap is not taken, you could be left wondering in the future what might have happened if you had just taken that leap would you find yourself in a better position today, would you have realised any of your dreams, or would your circumstances be precisely as it is now? So, what decision will you be making next, and where might it take you?

Intellisaving

Intellisaving is a money-saving app which integrates multiple savings and Isa accounts to the Intellisaving platform. The platform supports saving products such as Easy access, Regular savings, Cash ISA and more. The app and website also display the best saving rates in each saving category and is suitable for several saving requirements such as saving for a mortgage/house deposit, tax-free savings, retirement, and education.

In addition, the website also has a range of articles with money-saving tips, which include ‘How to choose the right saving account’ and ‘How to manage a household on a budget. These articles are helpful because they have pointers such as choosing the best saving accounts based on your needs and making the most of your earnings through different saving methods.

Intellisaving is a helpful app in any saver’s journey as it helps you stay on top of your finances and develop more of a discipline when it comes to saving decisions through the articles and features, they have readily available.

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