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If you had spare money to save monthly, what would you do?

At a time when household budgets are stretched and people have to commit more of their paycheque towards essential living expenses, it may sound strange to be talking about putting money aside every month. But really, everyone should be looking to save some money as often as possible to make sure they are financially secure.

This is something that we try to encourage as many people as possible to do, with the view that one day they might need a fund to access for an emergency, or simply for home improvements, moving house, or buying a new car.

But what are peoples preferred methods of saving? Or are more people using any leftover money to pay off outstanding debts? In order to get a better idea, we asked our users to address this question in our latest poll:

If you had spare money to save monthly for your long term future, what would you do?

The answers included, clearing debts, starting a pension, saving in an ISA, or simply not knowing what you would do.


Not surprisingly, saving in an ISA was top of most people’s list. In fact, 61.3% of the respondents said that they would use an ISA . As we know, ISA’s are tax-exempt, meaning that you will avoid income and capital gains tax, and that more of your savings will go to you, instead of the taxman. This makes them a much better choice than a normal savings account, where your money will be subject to taxation.

However, there is more than one type of ISA, and this was reflected in our question. While you are able to save in a cash-based ISA with guaranteed rates of interest, you are also able to save in a stocks and shares ISA. There are a few fundamental differences between the two, which makes choosing between them a little easier depending on what you want.

The first is the amount you are able to save. In a cash ISA the annual allowance is £5,760, while a stocks and shares ISA allows you to save up to £11,520 a year. You can combine the two as well, but between them you cannot exceed the stocks and shares ISA allowance.

The second difference is what you will get back from the money you have invested. In a cash ISA you will get a guaranteed rate of return. Recently the rate that you will get back has fallen, as banks and building societies have switched their focus from savers to those taking out loans and mortgages. This means a lack of need to attract savers has meant that the cash ISA market has presented what many would consider meagre rates of return.

In a stocks and shares ISA however, there is no guaranteed rate of return. Instead, the amount of growth you receive will depend directly on the performance of the fund that your money is invested in. Although this sounds like risky business, the chances of losing money over the long term are low, and the gains to be made greatly exceed cash ISA’s. In terms of the risk, you are also able to choose between lower and higher risk investments, meaning that you can protect your money at the cost of possible lower rates of growth.

So which is more popular? The answer is not too surprising, with stocks and shares winning 35.5% of votes, and cash getting 25.8%.

ISA – Useful tip

One useful tip if you’re looking to open an ISA and can’t decide which type is best for you is to ask yourself how long you’re going to be saving for. If your answer is fewer than five years, then it might be a good idea to consider a cash-based ISA. However, for longer term savings, a stocks and shares ISA will be a good choice. The simple reason for this is that, the longer you save for, the more chance you money has to recover from any potential dips in performance a stocks and shares ISA may experience.

Self-Invested Pension Plan (SIPP)

The SIPP is another option, and one that looks after your long-term financial future, by providing you with an income when you retire. SIPP’s are a little more complicated than ISA’s, but again you get the choice between riskier investments and more secure investments.

In our poll, just 6.5% said that they would use any spare money to start a SIPP. Part of this reason might be the fact that more and more people are taking up the option of a work place pension, where some of your wages are automatically paid into your pension, often as well as a contribution from your employer.

SIPP – Useful tip

If you’re self-employed, or don’t have a work place pension, then it’s a good idea to start a SIPP as soon as possible, even if you’re only paying in a small amount. This is because SIPP’s earn compound growth, meaning they earn growth on the growth. So, for every year you delay putting your money away, you’re missing out on your fund growing itself alongside your contributions.

Repaying Debts

This is another option we gave in the poll. A lot of people contact us regarding problems with repaying money they owe, and we know that this is a sensitive issue. In total 22.6% said they would pay off outstanding debts before thinking about saving for the future.

Most people will be in some sort of debt at some point in their life. Loans, finance deals and mortgages are just some examples of when a person is in debt, but in most instances this is carefully managed and repaid as planned. Obviously problems start when debt becomes too much to deal with, and it is in this instance that people turn to debt management plans.

Repaying Debts – Useful tip

Try to repay any debt as soon as you can. You will find almost certainly that the cost of debt where a finance deal has taken place outweighs the returns you will get from any investments you make. So use your money to sort your debt before you start to save.

Don't know?

We left this as an answer on our poll because we know finances can be confusing, and we don’t expect everyone to have a plan in place. However, we do hope that the above can help you to make your mind up. If not, we’re here to help. Our advisers can help you to by addressing your personal situation, and can assist you in setting up the right plan for you. Whether this is an ISA, a pension, or a savings plan for your children, we work with a wide variety of providers to bring you a wealth of savings choices. Simply ask a question on the site, or give one of our advisers a call today.

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