Saving smarter: myths vs reality

In today’s digital age, misleading information is everywhere, and savers could be following outdated advice that does more harm than good.

We’ve done the homework for you: breaking down the most common savings myths and replacing them with facts, so you can make smarter financial decisions and ensure your savings work harder for you.

Myth: Promo interest rates last for the whole term of the account

Many savers are drawn to eye-catching high interest rates, only to discover these are temporary ‘teaser rates’ designed to attract new customers. These promotional rates typically last for 12 months before dropping significantly.

Of course, you can switch accounts once you’re at the end of your fixed period, but banks count on your inertia. Research by money.co.uk conducted in 2024 shows that 69% of consumers haven’t switched savings accounts in the past two years. Yet during this time, the average rate for all savings accounts was 2.73%, while the rate for an instant access account was just 1.37%¹. This would mean on £10,000 savings, the difference between 2.73% and 1.37% over two years could be over £250 lost interest.

Solution: Set yourself a reminder for when the promotional period ends and be prepared to switch if there’s a better rate (and your terms and conditions allow). Online comparison tools can help make this easier, potentially earning you £000s in additional annual interest.

Myth: There’s no point in saving money if you have existing debt

Many advisers promote eliminating all debt before starting to save. But this oversimplified advice fails to recognise the importance of financial resilience.

Saving while paying off debt promotes financial discipline and provides a safeguard against unforeseen circumstances. Research from charity Stepchange shows that households with even modest savings (£1,000 or less) are 44% less likely to fall into problem debt when facing income shocks².

Solution: Though challenging, saving while managing debt is feasible. A balanced approach involves prioritising clearing high-interest debt (typically between 6%-8%) while simultaneously building a modest emergency fund of at least one month's expenses³. The psychological security of having this small financial buffer often prevents the panic-borrowing cycle that leads to deeper debt. Once high-interest debt is cleared, you can gradually increase your savings while maintaining minimum payments on lower-interest debts.

Myth: It’s not worth saving small amounts

Not everyone has a large amount of disposable income that they can afford to save each month. And, while it’s advisable to start saving as young as possible, some just aren’t in a position to do this. Many of us then think it’s too late, or the amount we have “spare” each month isn’t worth putting away.

Solution: It’s better late than never, and better to start small than not at all. Starting now and gradually increasing the amount you're able to put away can help you hit your goals.

Work out what amount you can realistically save while still being able to pay for essentials like rent, bills, groceries and existing debt. Then decide how long you want to save for, and how much access you want to have to your money. Some accounts, like Charter Savings Bank’s Easy Access account only require you to have £1 to open them, so it really is easy to save small amounts.

Remember as well that compound interest means even a small amount can build up – you earn interest on your interest and the principle sum increases, in a snowball effect.

Myth: Opening a joint savings account simply combines two individuals' tax allowances

Many couples open joint accounts thinking it's a straightforward way to double their tax efficiency.

The truth is more nuanced. For tax purposes, interest earned on joint accounts is typically split 50/50 between account holders (unless you submit a form to HMRC specifying a different split). This means each person uses their own personal savings allowance against their share of the interest. If one partner is a non-taxpayer or has unused allowance while the other exceeds theirs, you're not optimising your tax position.

Solution: Consider holding savings in individual accounts structured to maximise your combined tax allowances.

Myth: You can only open one ISA at a time

There are many misconceptions around ISAs, and the most common one we hear is that people think if they already have one ISA, they can’t open another one and they are stuck with what they have. In fact, you can split your annual allowance between more than one type of ISA.

Up until recently, you could only put money into one of each type of ISA every tax year. It meant you couldn't, for example, split your annual allowance between an instant-access and fixed-term cash ISA, or hold money in multiple stocks and shares accounts.

Solution: Each year you can invest up to £20,000 tax free, and it might be prudent to hedge your bets and spread your savings over a variety of accounts. Depending on the interest rates, length of the term and other restrictions/terms, you could, for instance, pay into a fixed-term ISA with a better interest rate, and at the same time open an easy access ISA with remaining funds if you wanted to ensure you could easily withdraw your money if you needed to.

¹ 69% of people haven’t switched savings accounts while interest rates have skyrocketed

² PAE0049 - Evidence on Pensions automatic enrolment

³ Debt Repayment Strategies