Last week, I was talking with some gurrrrlfriends over lunch and our conversation turned to money. That’s right, why talk about Manolos and New York gossip when we can talk about personal finance? Take that, Carried Bradshaw et al, we Londoners live it large… hmm.
Anyway, my Belgian pal recently moved to London and we were advising her about UK bank accounts. Did you know each country has it’s own banking characteristics? Not all banking products are available to everyone, credit clearance in one country isn’t the same in another. No wonder she was confused. And while we were trying to explain why you shouldn’t save all your money in your current account, it dawned on us - why is it so confusing to bank in the UK?
How many accounts do we need? What type of accounts should we have? Savings account? Current account? ISA? Fixed-rate? Foreign exchange?! Credit Cards? PERSONAL FINANCE OVERLOAD.
Well, how many bank accounts should I have?
The answer is simple. Have as many or as little as you want. That's the thing about PERSONAL finance- doy.
There's no hard and fast rule and there's certainly no MUSTS. However, with most options in life - there are plenty of shoulds. (Complete with finger waggle and knowing look.)
So, today’s Face Value Beauty Blog #MoneyMonday is a quick run through of the ‘shoulds’ of UK personal finance. Hold onto your truffles guys, here we go!
The Basic Recipe
- One current account.
- One savings account.
Your current account for your incoming wages, your cash withdrawals, paying your bills and your regular spending.
Your savings account (with a higher interest rate than your current account) for putting funds away for safe-keeping and growth. And also – even if the interest rates are a bit pants right now, at least you’re not holding all your cash in the same place.
The Next-Level Recipe
- One Current Account
- One Savings Account
- A cash ISA
For extra bonus points and 1-UPs, one of these should ideally be an online-only account – they give better rates than accounts from your branch.
This is the same as The Basic Recipe, plus an Individual Savings Account (an ISA).
Did you know you pay tax on your interest earned? An ISA allows you to save up to £5,760 a year without any tax paid on the interest.
There is a SHOULD to say that you should get an ISA before your daily savings account so you don’t have to pay tax. However the best rates are often available on ISAs which restrict withdrawals – once you withdraw money from your ISA, putting it back in counts as part of your annual allowance so you can’t dip into it like a ‘normal’ savings account.
ISA’s are great for those lacking self-control (like me!!) – once I put it in, I basically ‘can’t’ touch it for a year. I’ll thank present-day Zoe Dubs in a couple years time when I’m rolling in some new wheelz. (or most likely, parading round in new heels!)
The Best In Show Recipe
- One Current Account
- One Savings Account
- A cash ISA
- Another investment account
Another step up from the Next Level recipe – this combination has your current account for your regular monies, your savings account to hold the extra, your ISA for rainy-day funds AND another investment account like these:
BONUS ROUND: New Investment Ingredients added!!
1) Fixed-Rate Savings.A good way to boost your interest rate is to ‘fix’ the rate. No, I’m not talking like match-fixing or Bob The Builder – most savings accounts are based on variable rates( i.e. the interest rate will vary with the economy.)
Fixed-rate accounts guarantee a certain % over a set period. For example, put your money away for a year and you’ll get 1.8% interest compared to to a todays rubbish rates of less than half%. Put it away for a couple of years and you could get 3% guaranteed. Pretty decent.Fixed-rate savings are pretty good in times like this when the economy is slumping and interest rates are still pretty pants. However, you lose the flexibility of moving your money around if the going suddenly gets good. If suddenly, the interest rates start increasing, you’re stuck with your given rate for the rest of the set period. Probably good for people who have the money to put away and wouldn’t bother to move their money within a year, even if they did have the choice. (think about it – even though interest rates are changing, how often do you move your money around?).2) Regular-Saver Accounts.Regular-Savings are like mint-choc-chip ice cream to me - they're my fave! These are specific products which allow you to put an amount away every month (normally anything between £10-£300 every month) and if you do this every month for 12 months, you can earn some cray-cray high interest rate!Last year, I started a Regular Saver account where I put away £100 every month for 12 months and earnt 8% interest. 8%!!!Regular-saver accounts are great for people who want to put away a bit at a time, with the added discipline around the “you must do this every month otherwise I keeeell you” part. (seriously – if my bank said that, I’d be SO much more disciplined at saving!! I should start a Face Value Beauty Bank haha).
So there we go - three solid recipes for you to follow for personal finance fitness. There are so many more things for me to say on this but let's not show all our cookies at once shall we?
Are you a couple, a stay-at-home mum, an environmentalists or an ethical activist? - there are plenty more options to discover in the world of UK bank accounts, who knew?!
My Belgian pal has a whole new land of fun to look forward to now.... or at least, something more interesting to talk about over lunch.
To finish - here's an adorable picture of a puppy, lying on some cash. Why not?
Would love to know the personal finance topics which bug you the most!
Which recipe do you follow? WOULD you join Face Value Beauty Bank?!!!
** This #MoneyMonday is dedicated to Mr FV, who needs to GET AN ISA!! (still love you, FOOL.)