Hi all, apologies if this is in the wrong place - I'm quite new!
Some background: Me and my oh currently live at home with parents and have a child together - we are 21 - and between us have three jobs. We are aiming to save for a deposit on our first home by 2016 if all goes well but asides from just putting money in the bank, don't really know what else we could be doing to speed things up slightly, gain more interest or actually help us achieve our ultimate goal. We pay our parents a small amount of 'rent' a month to help them with bills and groceries and asides from £10 phone contracts each have no other outgoings. Our income is quite low but we are both also studying for our respective degrees which will hopefully help us gain better paid jobs in the future.
We have two savings account atm, one in his name and one in mine. Between us we have around £7,000 saved from the past year and hopefully after cutting back on a lot of things will continue to save the same in the future, if not more, per year. My concerns however are the interest rates on our savings - they are the highest we can get without putting money into a fixed term account but I'm not sure if this is a good idea incase we need to take money out for an emergency? How can we insure that our money is 'working for us'? What on earth are ISAs? Any advice would be greatly appreciated.
ISAs are tax free savings and you should both definitely utilise your tax free allowance (approx £5600). You are likely to get a better rate in a fixed account so if you are worried about an emergency fund, sit down and think about what you realistically need to have put aside for an emergency and then lock the rest away.
I will definitely look into opening an ISA in that case. I think realistically I don't need more than £2000 for an emergency fund seeing as I have no outgoings and I can't foresee any big expenditures coming my way but locking the remainder away seems to be the most sensible plan. Thank you!
It might be worth you having a look at Martin Lewis' website -money saving expert. You can compare different sorts of accounts, check out best deals etc. I always look on there for advice and personally find it really useful and not full of jargon. The £5600 you are allowed in ISAs is per person so you could put that in from your already saved pot and put the other amount saved "in case of emergency" in another and add to it. Maybe you could tie one up for a couple of years and have the other as an easy access so if something does np happen and you need cash urgently, you can get at it. Also, with ISAs you go back to being able to save another £5600 from the start of the tax year. As far as I am aware, you also do not enter any interest from ISAs on to your tax credit renewals as well.
Saving is quite unrewarding these days as interest rates are so low. You would get a better return investing in a stocks and shares ISA, but then you bear the risk of the Stock Market crashing and you losing some/most (you'd have to be very unlucky to lose all, but it's theoretically possible) of your money - it's not protected. The total ISA allowance including stocks and shares is £11,520 for 2013-14. You can buy ISAs that you pay in a certain amount per month. You could look at discount brokers like Willis Owen or Allenbridge, as you don't want to lose your capital in fees.
Have a look at Martin Lewis, also The Fool (Motley Fool). They, and I, suggest if you do go down the stocks and shares route, you go for a 'Tracker' which just tracks the stock market and thus saves fees for 'managing' (ie buying and selling shares) a fund. It's a rare managed fund that outperforms a Tracker over time.
The stock market isn't normally recommended for short-term investments (under 5 years ish) because of the risk, but you'd need to weigh up what you might (or might not) lose against what you will lose on deposit while interest rates are lower than inflation. (Eg if you are getting 1.5% and inflation is 3% your savings will reduce by 1.5%, while you might have a 1% drop in the Stock Market and be better off.) Be very sceptical of anyone who tells you what stocks and shares are 'going to do'. They're guessing!
You could do a bit of both. Depends how brave/lucky you feel!
I hope I haven't confused you. I believe in knowing what your options are, even if you stick with your original plan.