When choosing a savings challenge, it’s more important to choose one that you can realistically stick to for the duration, rather than opting for the hardest in the hope of greater rewards. So here’s how the four most popular UK savings challenges stack up in terms of how much you’d save in a year, plus how the really tough weeks are for each.
The 1p-a-day challenge
This challenge starts gently and then gets tougher towards the end of the year. It starts with saving 1p on the first day of the year followed by 2p on the second day, then 3p on the third day and so on until the end of the year. In total this saves £667.95 over the 365 days of the year. However the final two weeks are particularly tough, as the day before the 365th day you’re saving £3.65 and the following day you add another 5p to that, meaning that in the two weeks leading up to Christmas you’ll need to save an extra £45-50 on top of what you’ve already saved throughout the year.
The classic 52-week challenge
Saving £1 in week 1, £2 in week 2 and so on until you reach £52 in week 52 adds up to £1,378 over 52 weeks. Although you’re not adding too much to your savings at the start of the year, weeks 45-52 fall in November and December, meaning you’ll be saving amounts of £45 and above at a time when many people are concerned with Christmas spending. Many start the challenge in January but, by around week 48, the interest of starting the challenge in earlier in the year wears off.
A fixed weekly amount challenge
Sawtooth increases can make for a very stressful end to a savings challenge. Instead opt for a savings challenge that reflects your normal budget, ie savings that you can afford to put aside on a weekly basis. Instead of saving £1,378 over 52 weeks (average of £27 per week), for example, saving £520 over 10 months (average of £52 per month) or £800 over 52 weeks (average of £15.38 per week) could be more suitable. Our savings challenge builder allows you to set your own target amount for your savings challenge as well as altering the time frame to suit your needs. The resulting schedule can then be printed out to refer to throughout the year.
Spare-change round-ups
By putting the remaining change from your card transactions into saving, the interest from your everyday spending can pile up. If you’re regularly spending by card for your shopping and have a good spread of transactions, round-ups can add up to as much as £400 over a year. It’s easy to see that payments such as £3.40 for a coffee and a cake could be rounded up to £4 with 60p going into your savings. It’s worth noting however that there are periods in the year where you will have quieter weeks for spending and as a result, less will be saved in round-ups. This challenge is best suited to those with frequent card transactions for regular spending and do not have large occasional purchases. As outlined in Barclays’ everyday saving strategies, small and regular transfers into saving are felt less than removing large sums of cash for saving.
Where to actually keep the money
When it comes to where your money is going to be, a standard easy access account is the best place for money you think you might need to withdraw in an emergency. However, for money you are pretty certain you won’t need to withdraw, saving in a cash ISA (which is also tax-free) or even a Lifetime ISA (where the interest is also tax-free and you are using the savings towards a first home or your retirement) could mean you get more out of your savings. See the FCA’s regulated financial guidance for more on this.
The Lifetime ISA bonus worth knowing about
If you’re saving towards a first home you could consider a Lifetime ISA. If you’re under 40 you can pay into a Lifetime ISA until you’re 50 and withdraw the money towards a first home as well as in retirement. In a Lifetime ISA the government add a 25% bonus on top of the money you save. So if you save £4,000 in a Lifetime ISA the government add £1,000 so you end up with £5,000. GOV.UK’s guidance on the rules and the bonus on a Lifetime ISA explains the rules on who can open and use a Lifetime ISA as well as the rules on withdrawal – including the penalty for withdrawal of money in a Lifetime ISA for reasons other than towards a first home, or in retirement, or on terminal illness. For example the penalty for withdrawal of money in a Lifetime ISA for reasons other than towards a first home, or in retirement, or on terminal illness would be that you’d lose the whole bonus as well as any interest on the bonus. The amount you can pay in each year is up to £4,000. The challenge money of £1,378 would add up to a bonus of roughly £344 if the whole amount were to qualify.
How interest adds a small but real boost
Of course, interest is never going to add loads of value to savings challenges. It might be worth around £25-£30 over the course of the 52 week challenge, if your savings account has a decent interest rate, and you add to it regularly throughout the year. But that’s the sort of amount that could add up over several years of repeat savings challenges.
Building a challenge that fits your own numbers
The four savings challenges above can be used as a starting point, and you can adjust the challenge to better suit your budget. For example, you could be saving to reach £800 within a 10 month period instead of the 12 months set for the £1,378 challenge above. There is also a savings challenge builder which can create a schedule for you based off of the amount you wish to save and the time frame you wish to save within.
In the end, it doesn’t matter which challenge you pick, as long as you can afford to save the amounts outlined in your worst week of the year.
