2 savings accounts you must have

If you have decided that 2012 is the year you’re finally going to kick your finances into shape, then getting into the savings habit will be a big part of the process. Don’t think that sorting out your money needs to be too daunting a task though, Sian’s got some great tips on how to get organised bit-by-bit.

And now, the saving. This needn’t be complicated either. Aside from a current account to use for day-to-day spending, there are only two other places you absolutely must have some money saved up.

1. An emergency fund

With the number of unemployed in the UK at 2.64 million – the highest it’s been since 1994 – redundancy is still a big worry for plenty of us. But if you did lose you job, how long would you be able to support yourself and your family?

That’s why if you save for anything this year, it should be an emergency fund. Yes, you could get some form of insurance, but ASU – accident, sickness and unemployment insurance –  is often expensive and has a lot of exclusions, meaning you could end up with much less cover than you thought.

By creating your own emergency fund, you are effectively insuring yourself. You don’t have to rely on hoping a policy pays out if you find yourself in trouble, you know you have the money. Plus, putting what you would pay for an insurance policy into a savings account means that even if you don’t face unemployment, the money is still yours.

You should make sure you set up your emergency fund in an easy-access account so that you can get at it straight away if you need it. But you’ll need some willpower too – needing some cash for a new TV does not count as an emergency, so be very wary of dipping into it!

Ideally you should aim to save the equivalent of six months of your salary. That sounds like a heck of a lot I know, but it gives you a good buffer to find more work if you do lose your job. Start of by aiming to save the equivalent of three months wages as soon as you can, then gradually work towards building it up to six months.

It might all sound a bit depressing, but its so much better to be prepared for the worst just in case, and as I mentioned; if you find you never the need the money then you’ll have a nice tidy sum to enjoy in your retirement.

2. A tax-free savings account

There are so many different savings options out there that it can be a bit of minefield trying to decide which to choose. But (aside from your emergency fund) if you don’t put money anywhere else, you should put some in a tax-free savings account – an ISA.

You get an allowance each year of how much money you can save without paying tax on it – up until 5 April 2012 it’s £ 5,340 and from 6 April 2012 it’s £5,640 each tax year. But from each new tax year it starts again, so if you don’t use that year’s allowance at all, you’ve lost it forever.

Don’t let the taxman get his hands on any more of your hard-earned cash than is absolutely necessary. Even if you can’t possibly save that much each year, it’s still worth putting as much as you can into an ISA, and keeping every penny of your interest. Plus once you’ve got money in an ISA, if you keep it there, it can stay tax-free forever.

{Image: jay d}