Saving money isn’t sexy. It doesn’t matter whether you are saving on your bills or putting money away for a rainy day, saving the pennies just doesn’t catch the imagination the way splashing the cash does. Even the words that are used to describe saving are almost offensive. Frugal… thrifty… cheap…
On the other hand, having a nice little pile of cash is pretty sexy. Having a rainy day fund, or a wad of emergency cash is like knowing that if you ever get into trouble, someone has your back.
We’ve all heard that an emergency fund should be about three months salary. It’s one of those accepted “facts” that’s been around for years, but no amount of googling seems to turn up its origin or the reasoning behind it. It probably came about as a way to demonstrate an attainable savings goal. Like getting from unfit to running a 10K, or losing a stone. Not easy, but doable.
Just like getting fit, there are plenty of barriers to saving money and some are beyond our control. Our incomes are down, the banks are a shambles and the government never stops doing its bit to make it harder and harder for us to put away what little money we have left. After they hacked into our incomes, they went after our savings and hiked the DIRT rate from 25% to 27%. But that isn’t the end of it, if you have a term account of more than a year, they’ll take a whopping 30% of your interest.
Despite having the odds stacked against us, we’re nervous; and nervous people want to save. The good news is that if you’re thinking of getting started on that rainy day fund, the tools are there to make the actual mechanics of saving pretty easy. And, with a little work, there are ways to play the banks and the government at their own games, which can help to keep our savings safe and maximize and the interest we earn.
First thing is to open the best high interest regular saver account you can find. Pretty much every financial institution offers a regular saver, but most of them, to be quite blunt about it, are crap; so watch out for them. The offences include only paying decent interest up to a paltry limit. Only paying decent interest for one year. Magically changing your account into a term account with a reduced interest rate. Sadly, this kind of stuff is standard practice with our banks – they want to get your money in, lock it down and pay sod-all for it.
Having said that, there are a few decent ones out there and Ulster Bank’s Special Interest Deposit Account is probably top of the heap. It pays 4% on balances up to €15,000 which should be enough for your nest egg - and you can deposit anything from €1 to €1,000 per month. The interest rate doesn’t run out after a year, they give you instant access and you can use their online banking to get at your cash.
On the other hand, AIB’s Dual Saver has some of the tricks up its sleeve. It offers a decent 3.5% to start, but only up to €5,000. Then it “sweeps” your money into a “lump-sum balance” where they say it continues to earn a “great rate”… This great rate is currently 1%.
Once you’ve got your regular saver set up, the next thing is to decide how much you can comfortably afford part with every month and how soon you want to have that emergency fund sorted. If you put away 5% of your take home pay every month, it’ll take 5 years to reach your three months salary goal. Put away 12.5% and it’ll take just 2.
Once you’ve decided on the amount you can afford, set up a standing order to have it transferred automatically from your current account into your new regular saver. The best time is right after you get paid. Easy-peasy right?
Not quite… With incomes already squeezed to breaking point, for many of us there just isn’t 12.5% or even 5% left at the end of the month to put away for a rainy day.
No pain cost-cutting
Not having the money right now doesn’t necessarily mean we can’t start saving though. And we may not need to make any drastic cuts or lifestyle changes. A good place to find some extra cash is by paying as little as possible for the stuff we need. There are loads of ways to do this, but household bills and direct debits are a good place to start. If there are companies hoovereing money directly out of your bank account every month, surely there are providers out there that will give you the same services for less?
There usually are. It’s well worth the effort to look into switching your gas as well as electricity. If you can stop paying line rental and get cheaper broadband, go for it. Think about Freesat instead of paying for satellite TV. Get a better mobile deal. Get cheaper car and home insurance. Literally hundreds can be shaved off our bills this way and with no real loss of service. For most of us the only thing stopping us is our own inertia.
Somewhere safe for your nest-egg
Once you’ve reached your savings goal you’ll need somewhere else to put your cash. This is an emergency fund after all, so stay away from term accounts and don’t let your bank roll your savings into one. The banks love these accounts because you can’t get at your money and they can do whatever they want with it. The longer term versions are also the accounts that the government is now charging 30% DIRT on.
Whatever you do, stay away from the big bank demand accounts. Yes, you can get at your money right away, but these accounts usually pay as little as 0.01% interest. That’s €1 in interest for every €10,000 on deposit and when the DIRT man has had his bit, you’ll be lucky to see 73 cent at the end of a year.
There are still some decent options out there though. And from banks that don’t make our palms sweaty.
Nationwide UK has and Easy Access account offering 3% and you can withdraw without notice up to 6 times a year. That's not a lot, but here’s hoping you don’t need to dip into an emergency fund more than 6 times in one year.
Northern Rock went bust a couple of years back. So not somewhere you'd immediately associate with safety. But with the help of the UK Treasury, it was split into two entities and the deposit one is pretty solid. They have an online demand account with proper instant access, unlimited withdrawals and a rate of 2.5%, which isn’t great, but it’s not terrible either.
And finally, RaboDirect has a 2% online demand account which as they say themselves “isn’t the highest rate in the market” but they’ve done a really good job selling their rock-solid reputation to jittery Irish customers and as you might imagine, they’ve been keeping very busy opening new accounts over the last few months.