Falling interest rates may make it harder to find a decent-paying savings account but there are more fun ways to put money aside.
Savings challenges provide an alternative or additional way to save cash.
It isn’t the most effective way to build wealth long term, but can help you get into a routine of setting money aside, especially if one of your new year’s resolutions is to save more money.
We have rounded-up the best savings challenges - and asked experts if they really work.
The envelope challenge
Label 100 envelopes with numbers one to 100 and randomly pick one each day to put the corresponding amount inside in cash.
You could end up with a few thousand pounds saved depending on how much is put in.
But the downside is that you are not earning interest so the value of the cash will decrease when you account for inflation.
Rachel Springall, finance expert at Moneyfactscompare.co.uk added: “You may be better off using a regular savings account instead to deposit some cash each month that earns interest. If someone must save weekly to get into the habit, an easy access account is a good choice.”
Revenge saving
If you find yourself feeling guilty about a purchase, you could put the equivalent amount aside using revenge saving.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Some will choose bad shopping habits – like late night scrolling on social media.
“Others will pick particular retailers to apply the rule to. It can’t be used indiscriminately, because you’ll just end up running out of cash and dipping into your savings, but it can be a useful way to curb spending and boost savings at the same time.”
The idea is that you will hopefully eventually prioritise savings over spending, and if you don’t have spare cash, to consider selling off items you no longer need.
But Springall warns it can create a negative feeling surrounding what needs to be sacrificed to save in the first place.
She added: “Debts should be prioritised to pay off as the interest charged is usually more than what can be earned on a typical savings account.”
Savings challenges
Grow your savings gradually by increasing the amount you save on a daily, monthly or weekly basis.
One option is the 1p savings challenge, where on day one you put a penny aside, 2p on day two and keep adding a penny each day.
It is an effective way to start saving slowly but Coles warns it can be tricky to stick to, especially by the final month when you’re having to free up more than £3 a day. That said, you can do it in reverse if you expect to have a quiet January after December festivities - and the quicker way your pot totals up can by a psychological boost too.
Other options include increasing in multiples of £5 or even £10 each week or month.
No spend challenge
Choose a day, weekend or even a week where you don’t spend any money.
Vix Leyton, consumer expert at thinkmoney, said: “Used correctly, this can be a helpful reset rather than a permanent rule.
“It can help people notice how often they spend on autopilot, particularly with contactless payments and mobile wallets.”
But Coles warns this won’t work if you just save up everything you need to buy to the end of the challenge, so you actively need to work at finding cost-free options and move any money you would have spent into a savings account.
Reverse budgeting
Rather than waiting until the end of the month to see how much you have left to save after all your expenses, many experts suggest “paying yourself first.”
Leyton said: “This reframes saving as a priority rather than an optional extra and takes it out of your account before you have a chance to miss it, swerving the sense of sacrifice.
“The key is setting an amount that is genuinely affordable, as overly ambitious targets often lead to dipping back into savings and undoing progress.”
Automation
Savings challenges can be a lot of effort.
Rather than having to remember to put money aside on a regular basis, another option is to set and forget through automation.
Setting up a regular direct debit or standing order from your current account can help build a savings habit, often without even noticing.
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You will need to decide how much you can afford to and need to save and set it up to automatically transfer to a savings account where you can earn interest.
Coles said: “If you set up a direct debit to come out of your current account and into a savings account on pay day, you’ll automatically do the right thing without having to think about it. It doesn’t have the novelty of a savings challenge, but it can be incredibly effective.”
There are also apps such as Moneybox that will round up your spending and set the ‘spare change’ aside, while tools including Plum use artificial intelligence to calculate how much you can afford to save each month.
Mobile audit
You may be able to release extra savings by monitoring how much you are actually spending.
Check for direct debits that you may have forgotten about such as for music streaming services you don’t use or if you forgot to cancel a free trial.
Leyton said: “Regularly reviewing mobile payment activity, separating subscriptions from day-to-day spending and setting calendar reminders for trial end dates can help restore visibility.
“Introducing even a small amount of friction, such as disabling one-click payments for non-essential purchases, can also make a meaningful difference.
“As with many money habits, awareness is often the most effective safeguard.”
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
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