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Why saving is the habit you should never give up on

A lack of savings is preventing many people from doing what they want, according to a recent survey by Experian.

WAY OF LIFE: Murdoch Campbell says young people don't appreciate the value of saving.
WAY OF LIFE: Murdoch Campbell says young people don't appreciate the value of saving.

From taking a holiday to buying a property, carrying out home improvements or buying a new car, inadequate savings are holding people back. Although the easy answer is to borrow more, financial experts point out that getting into a regular savings habit is the best way to tackle a non-existent nest egg.

This may seem an obvious solution but is often overlooked nowadays. Sue Hannums, director of Savingschampion.co.uk, says: "Many people seem to have lost the art of regular savings, maybe it's because interest rates are so low and they don't think it is worth it but there are in fact regular savings accounts available which are paying very attractive rates."

The latest Family Finances survey by Aviva shows that nearly a third (32%) of UK families save nothing at all each month. Those who find it most difficult to save are parents bringing up children on their own, while couples planning to have children are the most likely to save.

Although many people have got some savings, Aviva commented that this savings cushion is "relatively threadbare" in many cases. The percentage of families with less than £500 put away has jumped from 14% to 30% in the last year.

Many people coping on squeezed budgets may view the prospect of saving money each month as an impossible task. Yet, as David Black of consumerintelligence.com points out: "Even for those with little spare cash available it's good discipline to try and save something each month and it's worth setting up a direct debit to do it because that way it goes out of your bank account and you get used to budgeting without it. Even a small amount saved regularly can build up to a tidy sum over time."

There are various regular savings options. The best one will depend on your timescale and savings goals. If your nest egg is virtually non-existent, the first thing you need to do is to build up some cash. If you are saving short term for a holiday, or putting money aside for the deposit on a house, then bank or building society accounts are also best.

There are some very high interest rates available for regular savers. First Direct, HSBC and M&S are currently offering 6% fixed on savings of between £25 and £300 a month.

But you can only access these accounts if you also have a current account with these banks.

Ms Hannums says: "They are very high rates but the banks can afford to offer them because the amounts of money are relatively small, the savings term is limited to 12 months and it is a good way of attracting new banking customers through the door."

If you don't want to move your current account, the best general regular savings account at present is offered by the Leeds Building Society.

It is paying 3.05% on amounts of between £50 and £250 providing you pay into the account every month, and do not make more than one withdrawal a year. Even after basic rate tax, the return on the Leeds account is higher than Nationwide's tax-free regular savings ISA which pays 2%.

For anybody who is saving for a deposit on a home it may be worth considering a specialist mortgage savings account. These often provide extra cash bonuses when a home loan is taken out using the money saved for the deposit.

However, the disadvantage with these accounts is that the provider may not be offering the best mortgage deals on the market at the time you want to buy.

For longer-term rainy day savings, savings for children, or retirement, it makes more sense to invest in the stock market via a regular savings plan.

This way there is the prospect of capital growth. Investment trust savings plans are often recommended for this purpose. Annabel Brodie-Smith from the Association of Investment Companies explains: "Investment companies spread your risk across a diversified portfolio of shares."

Saving regularly reduces your risk further because it smooths out the highs and lows in the stock market as you are buying when share prices are low as well as when they are high which gives you a smoother average return."

Investment trust savings plans are also very flexible, as you can stop them and restart them without penalty, or withdraw your money at any time, though the longer you leave your savings invested the better.

Some groups offer very low cost savings schemes with no initial charges to pay.

Two with the lowest savings minimums are Scottish Investment Trust and Baillie Gifford which accept from £25 and £30 per month respectively. Other low cost schemes are offered by Artemis, Fidelity and Investec which accept from £50 per month.

Investment trusts also offer a range of investment options from general, globally invested trusts to more specialist ones.

Global growth trusts are often recommended as the best option for smaller savers as they give investment managers the scope to invest in whichever markets they believe offer the most potential.

Performance figures show that £50 per month invested in the average global growth trust over the past ten years would now be worth £9740.

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