Woman putting money into a piggy bankQ: I am struggling to keep our heads above water financially, but with all the reports about the recession continuing for at least the next couple of years, should I be trying to save money?

A: Ideally, yes, everyone should aim to save enough money to cover a full two months’ worth of bills should the worst ever happen, but we all know this is easier said than done in these tough financial times.

A recent report from Scottish Widows revealed that almost one third of the UK population (roughly 15 million people), is not managing to put away anything in savings after paying essential bills.

And to beat inflation (i.e. make any return on your savings), a basic rate taxpayer at 20% needs to find a savings account paying 3.37% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 4.50%, and there’s not a lot of these about at the moment that allow flexibility in terms of how much you put in and how much you can take out.

My advice would be to concentrate on paying your essential bills first: rent/mortgage; council tax; energy; water; food. Then, if you have debts with a high rate of interest, pay as much of these off as you can to reduce the amount you pay in interest.

Now you can think about saving. Make sure the first place you put your money is in an ISA, which is tax-free savings, see our Cash ISA feature by clicking here.

You can then look to open the best rate savings account. If you can set up a direct debit for the same amount every month (even if it is just a small amount), you could take advantage of higher regular saver accounts such as the Norwich & Peterborough Building Society E-Regular Saver, which is available online and pays a fixed rate 4% AER for a year including 1.5% bonus. You can save between just £1 and £250 each month and can make one withdrawal per year.

Andrea Ventress, money expert


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