SAVINGS rates are pretty poor at the moment but you can still build up a healthy sum over the next decade by putting a small amount of cash away each week.
Here is how saving £20 per week could be worth £13,000 over the next 10 years.
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Banks and building societies haven’t had much incentive to offer decent savings rates in recent years.
Record low interest rates have pushed down the pricing of savings deals and there are very few products that can beat inflation.
It is still worth saving though so you have money put aside for emergencies or if you want to pay for big items such as a holiday, car or house deposit.
The highest rates are on offer for those willing to lock their money up for longer and savvy savers can often access five-year fixed rate savings accounts that pay interest of 1.5% per year.
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Some may even let you earn interest tax-free through an Isa.
You don’t even need a lot of money to get started.
Some will let you open an account with as little as £100.
The more you can afford to save, the faster you can reach your goals.
Even saving £20 per week, the equivalent of a few takeaway lunches, dinners and coffees, can give you £1,200 per year to put into a savings account or Isa.
That £20 per week could be worth £13,000 if you keep saving for a decade and can find a rate of 1.5% each year for your savings.
This may involve moving your money around or locking it up in long-term accounts.
You will also benefit from compound interest as the money you earn each year will bump up your savings and boost your returns.
Here is how it works.
Year one
Saving £20 per week would give you £100 per month and £1,200 after a year.
This would earn you interest of £18 based on a savings rate of 1.5%.
That leaves you with £1,218 in savings by the end of year one.
Year two
You can start the year with £1,218 of savings and will have £2,418 12 months later by continuing to save £20 per week.
This amount would then earn interest of £36.27 that you can put back into your savings.
You will then finish the year with £2,454.27.
Year three
Keep saving £20 per week on top of the £2,354.27 and your pot will be worth £3,654.27 by the end of the year.
The 1.5% interest rate would give you an extra £54.80 on top, bumping your savings up to £3,709.07.
Year four
You can take that £3.709.07 into year four and it will be worth £4,909.07 after 12 months if you keep contributing.
A 1.5% interest rate will add £73.63 by the end of the year, giving you a pot of £4,982.
Year five
Your savings pot will be bumped over £6,000 by the end of year five once you have made your £20 per week contributions, giving you £6,182.63.
The pot will earn an £92.73 based on a rate of 1.5%, bumping it up to £6,275.36.
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Year six
Assuming you can still get a rate of 1.5%, your savings pot will be worth £7,475.36 after contributions and will earn interest of £112.13.
That gives you a savings pot of £7,587.49 to take into year seven.
Year seven
Weekly contributions of £20 will boost your £7,587.49 pot up to £8,787.49 by the end of the seventh year.
This will then earn interest of £131.81 at a rate of 1.5%, pushing the pot up to £8,919.30.
Year eight
The savings pot hits a four figure sum by year eight.
It will be worth £10,119.30 after the weekly £20 contributions and £10,270 once you receive the 1.5% interest.
Year nine
Your £10,000 pot will be bumped up to £11,470 after your £20 weekly contributions by the end of the ninth year.
It will earn £172 of interest at 1.5%, giving you £11,642.
Year 10
By the end of year 10, you could have a pot of £12,842 after contributions.
You will earn £192.63 of interest on a rate of 1.5%.
This will then give you a pot of £13,034.63 at the end of the decade and all you had to do was save £20 per week.
What is a savings account?
Savings accounts pay a fixed or variable rate of interest over a set period and are products that let you earn a return on your hard-earned cash.
They are usually offered by the main high street banks and building societies as well as challenger brands.
A savings account is typically used to keep money aside for a set goal such as building a mortgage deposit or having a rainy day fund ready for emergencies.
(AD) How to find the right savings account for you
SAVING your money can feel like a daunting process.
How does a saving account work?
Savings products may require a minimum monthly deposit or a certain amount to open the account.
You will usually either get a fixed rate of interest that pays the same amount over a set period, or a variable amount that can change ant any point.
There are also easy access accounts that you can make withdrawals from at any time but others may have restrictions.
Usually, the longer you lock up you money for, the higher the interest rate.
How to choose a savings account
With interest rates so low, it can hard to find a savings account that beats inflation.
That means you are effectively losing money if you are paying more on your bills than what you receive from your savings.
There are few savings accounts that beat inflation but it is still better to earn something rather than nothing on your spare cash.
Your current account provider may offer exclusive rates or a comparison website can help you find the best savings or Isa account.
You should check the rate, minimum deposit, contribution requirements and any restrictions on withdrawals.
(AD) Compare a wide range of saving accounts at Compare the Market.
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