How to save for an emergency
Times are tough: unemployment is up, inflation is still high, the bills seem to keep rising and few of us can be certain that we will still have our jobs by the end of the year. And the source of funding we have all depended upon in times of crisis – our homes – is no longer a reliable way to raise money or a safe fall-back option, since the property market remains in the doldrums too.
No wonder consumers are being cautious – both retail spending and borrowing are down. However, even if we have called a halt on booking luxury holidays and forsworn any shopping sprees, we do still need to ensure that we are prepared for an emergency, whether that may be redundancy, a repair bill for the car, vet treatment for the family pet or a ‘distress purchase’ of a new household boiler, washing machine or other expensive appliance.
It’s estimated that one in three British households have less than £250 in savings that they could access quickly, and that one in five have no savings at all. Avoid being one of them and make sure you have sufficient funds squirrelled away to see you through a difficult winter.
The three-month rule
Personal finance experts have traditionally recommended that you should have the equivalent of at least three months’ salary saved – though advisers are now saying five or six months’ worth is better, since it is increasingly difficult to find suitable work again after redundancy.
Try to set aside a little spare cash each month by setting up a standing order; time this to leave your account as soon as your salary is paid in, and you won’t even notice that this money has gone. Put it away safely before you spend it!
(individual savings account) is a good way to save without having to pay tax on the interest you gain. You can save up to £5,340 in the 2011-2012 financial year tax-free in a cash ISA
, up to £10,680 in a stocks and shares ISA
, or split your ISA allowance and put up to £5,340 in one of each. The total cash ISA allowance for 2012-2013 will be £5,640; the total ISA allowance will be £11,280.
UK residents aged 16 or over can open a cash ISA, and choose between instant-access or fixed-rate products. A fixed-rate ISA may pay a higher rate of interest but will require you to tie your money up for a year or more, however, which is no good for an emergency; with an instant-access ISA, you will be able to get at it immediately.
There are also regular savings cash ISAs, in which you are allowed to save up to £445 a month tax-free. When choosing an ISA, read the terms and conditions carefully to see whether there are any limitations on, or penalties for, withdrawals or pay-ins.
Stocks and shares ISAs are available for UK residents aged 18 or more. These are riskier, as the value of your investment can go down as well as up, but potentially pay higher rewards; they are a longer-term proposition (usually five years) and should not be your only savings account.
Take control of your cash, make it earn you interest, and it will provide you with a valuable safety net if you hit hard times.
Issued by Barclays
This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.
is a major global financial services provider engaged in retail banking (bank accounts
instant access savings accounts),
credit cards, corporate banking, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 140,000 people. Barclays moves, invests and protects money and provides ISAs,
a mortgage calculator, home insurance,
guides on how to buy shares and other services for over 49 million customers and clients worldwide. For further information about Barclays, please visit our website