Your guide to savings funds

With hundreds of different savings products out there, we know that trying to make sense of saving can be overwhelming. It’s important to do your research into what products offer the best solutions for your needs - but first, you need to start with a solid foundation of knowledge.

We’ve put together this guide to help you understand the different types of savings funds: what’s available, what type of fund suits what type of purpose, and how each type works. Leave any questions in the comments - and get saving!

Emergency funds

At PensionBee, we think setting up an emergency fund is a vital part of anyone’s financial health. We all encounter emergencies, last-minute problems, or unexpected obstacles to overcome. Emergency funds ensure that we have the means to deal with these things before they get out of hand.

The main feature of a savings fund for emergencies is that it needs to be easily accessible. We can’t foresee sudden problems so an emergency fund needs to be available when you need it.

Look for savings funds that allow instant or easy access to your money. Choosing a savings account for your emergency fund, instead of using a current account, will likely get you a better interest rate. Importantly, using a savings account also helps you to keep your emergency money in your emergency account - so you know you’ll spend the money on real emergencies and not on that takeaway when you can’t be bothered to cook dinner!

Regular savings

Regular savings accounts require you to make monthly minimum payments. They tend to offer better interest rates than standard savings accounts or current accounts. They could be helpful in building up a savings fund, if you’re sure you can meet the minimum requirements.

Regular savings accounts have a bunch of rules associated with them that determine when you can take money out, what happens if you miss a payment, and if you’re eligible to set one up, so be sure to research your options.

Regular savings accounts require monthly payments

Many regular accounts will convert into standard savings accounts after twelve months.

In general, regular savings accounts are good for short-term saving where you’re not looking to access your money for a year or so. This makes them useful for holiday funds or similar goals where you want to build up a pot relatively quickly.

Retirement funds

Saving for retirement is important but how do you get started? Savings funds for retirement should be equipped to deal with long-term saving. You want to make sure that you can’t accidentally eat away at your retirement fund, which means keeping that money safe in a separate fund to your current account, until you’re ready to use it.

Pensions remain a good option for retirement savings. Pensions are long-term investments that can be tailored to your retirement needs. Best of all, pensions come with ^{_corporation_tax} tax top ups from HMRC on your contributions. In addition, if you have a workplace pension, your contributions are normally matched by your employer which could help you save even more.

If you’ve had a previous workplace pension or two, you might also be able to consolidate them into a single plan that’s easier to manage. Pensions can seem confusing but here at PensionBee, we know they’re really quite simple once you understand them! So be sure to do your research and pick an option that works best for you.

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Lifetime ISA

The Lifetime ISA is a new savings product designed to help people achieve one of two common life goals: buying a house and retiring.

The Lifetime ISA, also called LISA, is a tax-free savings product designed for these goals only.

The LISA can be used to buy your first home or for retirement

In fact, if you use the money in your LISA on anything other than your first home or your retirement, you’ll be charged.

LISAs offer a tax bonus on your contributions but does come with an annual limit, like all ISAs. Restrictions apply on when and how you can use your savings on your first home or your retirement. To find out more about LISAs and see how they stack up to pensions, check out our guide.

ISA

There are other types of ISA, which stands for Individual Savings Account. ISAs are tax-free and come with annual limits on how much you can deposit into your ISA per year. Due to the tax benefits, ISAs are popular options for a variety of savings needs.

Cash ISAs are a cash savings fund. There are lots of accounts available for Cash ISAs with some offering fixed-rate interest (in return for limited withdrawals) and others offering instant access. Be sure to shop around to find one that suits your needs.

Stocks and Shares ISAs are investment funds that come with the same tax benefits as other ISAs. If you’re a parent, you might be interested in a Junior ISA for your child. You can pay into a Junior ISA, up to £4,128 each year, as long as your child is under 18 years old.

There are lots of different ISAs for different purposes

For people looking to buy a home, the Help to Buy ISA might be a good choice, as the government will top up your contributions (up to a limit) and if you’re buying with a partner, they can also get a Help to Buy ISA.

You could also use a LISA to buy your first home - the main differences between these two products are that Help to Buy has a smaller annual allowance and greater restrictions on the types of house you can use it to buy. Check the restrictions on each type of ISA if you want to use one to buy your first home.

There are a lot of different ISA options out there to suit a variety of needs. Have a think about your savings goals and compare products to see what works best for you.

Have you got a better idea of the types of savings funds that would suit you? Let us know if we missed anything in the comments below.

Risk warning As always with pensions, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.