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Wednesday, 01 November 2017 10:22

Is it Still Worth Saving Money?

The current base rate in the UK, set by the Bank of England, is a mere 0.25%. That’s why interest rates on mortgages have been at historic lows recently. This official rate has been in place since March 2009, and it was only 0.50% before that. But while mortgage payers are rejoicing at the low rates, savers are wondering what they can do to boost the return they’re getting on their savings. And some are wondering why they should bother saving at all.

You can hardly blame someone who is thinking along those lines. Interest rates on savings accounts are incredibly low, and even larger sums aren’t getting a huge return – even those you tie up for several years.

So, should you still save cash each month, or should you simply not bother?

It’s not just about the interest rate

If you’re doubting whether it is worth saving at all, remember this. The interest rate does influence the rate you get on your savings, however much or little you have. The higher the rate, the better the return you are likely to get. The lower that bank rate goes, the lower your interest will go, too.

But that is only half the equation. You must also think about what those savings could do for you. Yes, if you leave your savings in a savings account for a time, the cost of living will erode their value. But we should all have a financial cushion in case we need it, and that is arguably far more important.

What would you do in an emergency?

An emergency could be your freezer breaking down for the final time. It could be a repair needed to ensure your car keeps on running. It could be something else that requires you to have access to a cash sum to sort out.

If you have that financial cushion, you’re fine. If you don’t, you’ve got an additional problem on top of the one you’ve already got. How are you going to pay for that repair, or replacement, or whatever else that’s needed?

Hence why we should all still be trying to save something each month. You may already have a cushion behind you, in which case, you’re prepared. If not, now would be a great time to start. Remember, it should be in an instant-access account, so you can get to the cash at a moment’s notice if need be. After all, emergencies must be dealt with immediately; you shouldn’t need to wait to give notice to get your money out in these situations.

So yes, saving money is still vital. But once you have an amount you are happy with, look at whether you can use any excess cash to reduce your debt liabilities each month. Clearing outstanding credit card balances, even paying extra off the mortgage – these are two ways you can make the most of your surplus cash. And they are both ways to make those low interest rates work for you, too.

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