We’re not taught at school the difference between different savings options, investing, or even what a pension is – so it’s not surprising many adults go through life unsure about the essential financial products that’ll help them stay organised with their finances.
I’m here to help.
These are the five types of financial product you absolutely should have – and if you don’t, it’s time to start thinking about getting them.
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Current Account
Alright, we’re starting with something obvious here. But there are many people who don’t have their own current account. This is the account you can access every day, spend on a debit card for, and have a salary or benefits paid into.
Some current accounts are paid for with a monthly fee that’s taken from your existing balance. That’s because they offer extras, like home insurance, as part of the package – but many people don’t need that. A basic current account is available to everyone, even if you’ve been declared bankrupt (at some institutions). You can also have alternatives like a Post Office account, but a basic current account will make handling finances easier.
If you have a shared current account with your partner, consider having a separate one just for you. This is just in case of any financial issues, such as if your bank suspects fraud on the joint account it could freeze the account so neither of you can access your money. Having one in your name helps you have a safety net in case things like this happen.
Individual Savings Account
An Individual Savings Account (ISA) is something everyone can have. In fact, you can have several different types, too! There are some that just hold your cash, some invest your money in the stock market, and others are more complex such as a Lifetime ISA which helps first-time buyers save for a deposit or people to put money away until they are 60 years old.
ISAs are tax-free. That means you don’t pay tax on any interest earned in those accounts. You can have more than one type of ISA, across different banks. The rate usually is great for the first year or two (on a fixed term basis) before it drops – so most people will shop around for a better rate each year to make sure their savings get the best interest rate possible.
Easy Access Savings Account
The one drawback of ISAs is that they have a deposit limit. You can only pay in a total of £20,000 a year across all of your ISAs. They also usually limit how many times you can withdraw your money – so they’re supposed to be longer-term savings accounts.
For a rainy-day fund or emergencies like boiler repairs in the middle of winter, an easy access savings account is useful. Look for ones linked to your current account, as they often have an enticing interest rate sometimes as much as 6% or 7%. Siphon off a little cash into your savings account each month to build an emergency fund that you can access at any time.
Private Pension
Many people rely on the State Pension for retirement – but it’s a very low payout and that’s if you have a full National Insurance record! Lots of people won’t get the full entitlement each week, which means there is not much to live off.
A private pension isn’t scary, though it can seem so at first. You might already have one if you’re enrolled into a workplace pension – which is great, because then your employer has to also contribute, adding ‘free money’ to your pension on top of what you give up from your salary each month.
However, if you’re self-employed or don’t qualify for a workplace pension, it’s easy to forget to set one up. The sooner you set one up, the less you need to pay in each month to build a great retirement pot thanks to compound interest and time for investment. Popular platforms include Nest, PensionBee, Aviva, and Legal & General – but there are lots out there, so it can be worth spending a little money for independent pension advice before you choose one.
A Credit Card
For those who have lived a debt-free life, a credit card may not be on their list of finance essentials! However, everyone should have one even if they only keep it for emergencies. First, if something happens to your current account (such as a suspension while there’s a fraud dispute), a credit card can provide you with emergency spending.
Second, a credit card helps build your credit score. This is important if you have plans to get a loan or mortgage in the future – or if you want to move into rented accommodation. Spend a small amount each month on a credit card and pay it off in full to show credit reference agencies that you’re responsible with your money.
