Why savings are essential - and how to build yours up

Some nine million Brits have no savings at all, while another five million have less than £100 put away, according to figures from the Money and Pensions Service (MaPS).

It matters. Because if a bill arrives that you can’t afford to pay, and you have no savings, the only choice left to you is default or debt.

And bills are rising fast. Higher energy bills don’t just mean paying more to heat your home, they also mean paying more for everything from food to cars as the people making and selling those products have to pay more for their energy too.

On top of that, a string of increases in interest rates by the Bank of England mean anyone on a variable rate mortgage, or exiting a fixed rate one, will be paying thousands more a year now than they did last year.

These rising costs have seen more than 11 million people seek money help in the past three months alone - with Brits asking energy providers and banks for extra support as well as hunting for free debt advice, MaPS found.

That makes it more important than ever to ensure you’re as safe as can be from rising bills, and a savings pot is an essential part of that protection.

Finding money to save

The first thing you need to do when looking to boost your savings is to take stock of your current position.  We’ve got a full guide to writing a budget here if you need a little help.

Once you’ve done that, it’s time to assess where your money’s going. If things are tight, or even if they’re not, it makes sense to reduce your costs.

If you can pay less interest on your debts - by moving to a cheaper loan or even a 0% credit card - you should. After all, it makes no sense to pay banks more than you need to.

There are a string of other bills you can cut without having to change your lifestyle too - from broadband to mobile phones to insurance - we’ve rounded up where to look for savings here.

How to save effectively

If you’ve got a monthly surplus at the end of this process, diverting some of that to a savings account you can draw on in times of need makes sense. 

Setting up a direct debit to move cash straight into your savings account each month helps automate the process, letting your savings build up without you thinking about it.

However, it makes no sense at all to go overdrawn as a result of this - so you might prefer to make the payments yourself.

If you’re doing that, the day before payday is a great time to move money - as you can see exactly how much you have left over to move. Setting a reminder in your calendar to check this will help you remember to act.

You should also look to make the most interest you can on the money you’re putting away. The top-paying instant access accounts are currently offering more than 2% interest, so any money you have that’s earning less than that should be moved.

Getting help

Of course, no amount of scrimping and saving can help you save if your essential bills are higher than your income.

But putting your head in the sand will only make things worse - with eviction and even potentially jail the ultimate consequences of defaulting on bills.

You can see our full guide to saving money, paying less on bills and boosting your income in our comprehensive cost of living hub below.