Where Do I Put An Emergency Fund and General Savings?

Victsing

Hi
So I'm now mortgage free and can start properly saving. I've got a small amount in an ISA and another normal Savings account, but most of money is sitting in my bank account which isn't ideal as it's not earning much interest.
I want to put some of this away as an emergency fund, but I'm not sure what's the best idea for this. I guess an easy access saver account, but the low interest rates don't give me much incentive to do this.
What would people recommend I do for an emergency fund account and for a regular savings account?
Is there an alternative to general savings accounts I should look at that would give me a better return?
Thanks

Bravepants

The defacto standard, oft-touted, instant access account around here would be Marcus by Goldman Sachs, although they have just reduced their rate to 1.05%.

However, I think the general feeling is that the benefits of actually HAVING an Emergency Fund (EF) hidden away somewhere far outweigh the interest you can get on it, so I wouldn't be too hung up on getting a "good" interest rate on your EF.

I use Marcus for general cash saving, and I have just started using Hargreaves Lansdown Active Savings for my Emergency Fund as it is more "out of sight, out of mind". There are a couple of instant access accounts available there, but their rates are about 0.5%. I was lucky to just last month open an Investec instant access account through Active Savings at 1.2%, but I reckon that will drop at some point.

There are fixed interest accounts on Active Savings too, and a good way of taking advantage of those is to develop a "Savings Ladder". So, you would divide your, say, 6 months emergency fund pot into 6 equal sums. Find a 6-month fixed account, deposit one month's worth of EF in there, and then wait a month to open another 6-month account and deposit your second chunk in that, and so on until you have deposited your last chunk. Six months down the line the first of your account matures and you can then find another 6-month account and so on. This technique is, of course, expandable to 12 months or more. However, you do need to be a bit more hands-on in this case and is likely more appropriate for large EFs, where the benefits of "higher" interest rates would be more apparent, but Active Savings makes the process less painful than having to go find accounts more "manually".

Eventually, when you have your emergency you will have a month's worth of EF available from an account each month.

I will leave it to others to suggest monthly savers, as I don't know a lot about them since I don't use them.

eskbanker

https://www.moneysavingexpert.com/savings/which-saving-account/ outlines a structured approach to finding the best account(s) for your circumstances.

Victsing

Thanks for the replies, that gives me a great place to start from. Much appreciated

Late1stTimeBuyer

I can see the point in locking in for 6 months to get better returns, but shouldn't a proportion of the emergency fund be available instantly in the case of an emergency? I personally wouldn't want all my emergency fund locked in for 6 months. 

Thrugelmir

Open a series of fixed term accounts. Then there's an account continually coming to maturity. 

Albermarle

Also Premium Bonds can be cashed in within a couple of days and for someone with average luck they pay a bit better than a normal easy access account.
https://www.nsandi.com/premium-bonds

eskbanker

Albermarle said:

Also Premium Bonds can be cashed in within a couple of days and for someone with average luck they pay a bit better than a normal easy access account.

That small variance can easily be eroded (or reversed) if buying or selling PBs at sub-optimal times, in that the difference between trading PBs at the very best and the very worst times is nearly two months, i.e. about 15% of returns if holding for a year (although this effect obviously becomes less pronounced the longer they're held for).

Albermarle

Yes PB's are not really suitable if there are regular cash movements in and out . However for an emergency fund, that might even not get used, they are a good alternative.

blue_max_3

Be aware that opening numerous current accounts can way heavily on your credit worthiness. Just something to bear in mind if you consider opening a number of accounts.

stephenadarglas

Albermarle said:

Also Premium Bonds can be cashed in within a couple of days and for someone with average luck they pay a bit better than a normal easy access account.
https://www.nsandi.com/premium-bonds

I'm moving a sum of cash into these as we speak - give it a go for a few years and see what happens!!!