Q&A with Ross Leckridge on how much to keep in an easy-access account
I’ve accumulated these savings over time and realise leaving this money sitting in these bank accounts isn’t ideal.
Would you recommend I move some to an ISA and would you have any other suggestions? I think I should leave about £20,000 in an account I can easily access in case of emergencies, such as house repairs.
A That takes real discipline.You’re right to suggest keeping some money in an easy access account – an emergency fund like this is the cornerstone of any decent financial plan. In terms of how much this should be, there’s no right or wrong answer. It’s whatever amount lets you sleep at night without worrying, allowing you to meet any short-term, unplanned, expenditure without accessing investments or longer-term savings.
After that, the key question is; what’s this money for? You’ll need to answer that before you can decide on any solutions.
Inflation tends to be higher than interest rates over the medium - to long-term, meaning the buying power of your savings usually diminishes over time[1].
Consequently, bank savings aren’t necessarily a great home for money that isn’t needed in the short-term.
To protect the longer-term buying power of your money, you need to grow it at a rate equal to or greater than inflation. This normally means taking some risk and accepting the value of your money will fluctuate, which is very different to cash savings.
Many people will open a tax-free Stocks and Shares ISA as a first step when investing. However, it’s important to know that an ISA is not an investment – it’s an account used to shelter any investment returns from tax. You’ll still need to decide what investments you want to hold in an ISA. The ISA allowance for 2024/25 is £20,000 so that’s the maximum amount you could put in this year.
Investments people commonly use for this purpose include shares and bonds which are often accessed through collective investment funds. There are thousands of these funds available in the UK, with different investment objectives and risk ratings.
Collective investment funds invest across a broad range of asset classes, sectors and geographical regions. This is known as diversification, and it can help reduce some of the risks of investing over time.
If you’d like further support, the Government-backed MoneyHelper website has information on investing or you can seek professional advice from one of our Financial Planners at Aberdein Considine Wealth.
- Ross Leckridge is a chartered financial planner at Aberdein Considine Wealth.