MILLENNIALS’ MONEY
How a raft of smartphone apps and online accounts are helping a debt-laden generation put money away
STUDENT debt, high rents and money-hungry social lives mean saving can be overlooked by millennials. But many of this group, defined as those born between 1980 and the early 2000s, have the ambition to save, whether for a holiday or a home deposit.
Poor savings rates, high minimum investments demanded by many fund managers and the fear of tying up cash in a pension until the age of 55, are deterrents. But by micro-saving or investing small amounts regularly, often with the help of technology, it is possible to ignite a rewarding savings habit.
SIMPLE SAVING STEP 1:
A current account that pays interest is a good starting point for beginners.
Sue Hannums, of independent savings expert SavingsChampion, says: ‘Everyone needs a current account so it pays to earn interest on salary going in.
‘Interest rates are higher than on traditional savings accounts – up to 5 per cent from Nationwide Building Society on its FlexDirect Current Account or 3 per cent from Tesco Bank.’
These rates are only on balances up to £2,500 and £3,000 respectively. Be aware that some accounts come with tough conditions, such as minimum funding levels or setting up multiple direct debits, so make sure you are disciplined enough to stick to the rules.
STEP 2:
Regular savings accounts are ideal for encouraging financial discipline. Designed for smaller savings, they tend to pay competitive interest rates. Hannums says: ‘Some of the best rates are reserved for customers with existing current accounts. Nationwide, for example, pays current account customers interest of 5 per cent on its regular saver deal.’
You can search for accounts on websites such as SavingsChampion and Moneyfacts.
STEP 3:
Tax-free Help to Buy Isas are an ideal way for millennials to start saving for a home deposit, especially since the Government tops up a saver’s fund with a 25 per cent bonus (maximum £3,000) on completion of a property purchase.
After an initial deposit of up to £1,200, savers can salt away up to £200 a month. Hannums says: ‘The highest interest rate is from Barclays at 2.27 per cent, meaning savers earn a competitive rate while waiting for the big bonus.’
This April will see a new account, the Lifetime Isa, available to those aged between 18 and 40. Similar to Help to Buy, it will also offer a Government bonus of 25 per cent but will allow bigger contributions, while savers can choose between saving for a deposit on a first home or for retirement.
STEP 4:
Tech-savvy millennials can now pick from a plethora of apps designed to make saving simpler.
Some are provided to existing customers of banks and building societies as a nudge to shift cash into savings accounts. These include Nationwide’s Impulse Saver, which encourages customers to replace spontaneous purchases of expensive coffees into instant saving instead by tapping an icon on their smart phone.
This diverts the sum they would have spent to their savings account. Those signed up to the scheme since it started in 2014 have collectively squirrelled away more than £20million with an average transaction of £30.
Other providers go one step further by automatically sweeping surplus money from a current account at the end of the month into a savings account.
For example, the Chip app connects to a customer’s online banking account, analyses spending and calculates how much can be saved without having an impact on everyday spending. That sum is then automatically moved into their Chip savings account (held with Barclays) and it can be withdrawn at any time.
One per cent annual interest is paid but if a customer recommends the app to friends they get an extra one per cent per referral, up to a maximum of five per cent.
If users accidentally dip in to overdraft, Chip will repay bank charges plus a £10 bonus.
To engage younger savers, the app uses popular social media language such as emojis to communicate.
Another app, called Oinky, will launch in the spring and plans to let savers link it to their chosen bank account.
Founder Conrad Holmboe says: ‘Every few days we will use an algorithm to determine how much a user can safely afford to save and automatically transfer such a sum into their savings account. We believe saving small amounts, adjusted to take account of your lifestyle, is the best way to help people save.’
HSBC Bank is trialling a similar SmartSave app, which includes an option to round up spending to the nearest pound, with the ‘change’ moving into an earmarked savings account.
The Folio app links a saver’s debit card to a special Barclays account and allows them to set specific savings goals. Other apps, such as Squirrel, help users plan a savings strategy.
EASY INVESTING STEP 1:
Before thinking about investing, it is vital to get a grip of any outstanding debts.
Clare Francis, savings and investments director at Barclays, says: ‘Start off on the right foot. It is far better to pay off any expensive debts before investing. Once debt is under control then think about investing a little each month.’
STEP 2:
Stocks and shares Isas allow you to invest up to £15,240 in the
current tax year without paying tax on any of the proceeds.
Francis says: ‘Tracker funds are the best option for those with small amounts to invest. They give you exposure to a specific stock market index, such as the FTSE100, providing immediate diversification to help spread your investment risk. Both charges and the minimum investment levels are low.’
STEP 3:
Beginner investors with limited cash and who lack confidence about where to put their money can find help online.
For example, so called ‘robo-advisers’ will allocate your cash across a range of investments based on your tolerance to investment risk.
Among the best value offerings is Moneyfarm, which has no minimum investment and no management charges on i nvestments up to £10,000. Nutmeg and Wealthify are other options.
STEP 4:
Investing on impulse using an app is a harder notion for millennials to accept.
Moneybox is among the first to try out the idea on British investors. Users of its app can pick how much they want to invest by direct debit each week into either a stocks and shares Isa or an i nvestment account.
They can also have purchases made on plastic rounded up, with the excess allocated to the account. If a coffee costs £1.80 then 20 pence is swept into the investment account. The money goes into one of three portfolios – cautious, balanced or adventurous.
There is a monthly subscription fee of £1 and an annual account fee of 0.45 per cent. The fee is waived for the first three months and customers can withdraw their money free of charge at any time. Ben Stanway, co-founder of Moneybox, says: ‘We’re proud to have made it possible to open an Isa in a couple of minutes from your mobile phone and get started with just £1.’
STEP 1:
Retirement saving can seem a bridge too far for young savers, but with time on their side this is the best way to begin.
Karen Barrett, chief executive of adviser website Unbiased, says: ‘For millennials, their greatest asset is their age. They should use it while they can to make them tens of thousands of pounds better off in retirement.’
The main drawback of a pension is that the money must be locked away until age 55.
There is generous tax relief on pension contributions, which helps build a pension pot.
For every £80 paid into a pension the taxman will add basic rate tax relief of £20.
Those in higher tax brackets can claim additional relief through their self-assessment form at the end of the tax year.
STEP 2:
The Government’s auto enrolment programme, started in late 2012, is expected to revolutionise saving.
The minimum combined contribution from the saver and employer is currently 2 per cent, rising to 5 per cent in April 2018 and then 8 per cent from April 2019. But youngsters who can afford to lock away more will achieve a more comfortable retirement.
Since employers must make contributions, anyone who chooses to opt out of a workplace pension scheme is effectively missing out on extra pay.
Jackie Leiper, pensions expert at insurance giant Scottish Widows, says: ‘There is no denying the positive impact which auto-enrolment has had on young people’s ability to save for retirement.
‘But our research shows that this generation is now looking for support to help them put aside more of their earnings.
‘Pension providers can help by offering millennials new and innovative ways to keep track of their pensions, whether through online portals or smartphone apps.’
This spring, Scottish Widows plans to roll out its app to members of workplace schemes it manages.
STEP 3:
The self-employed, currently excluded from auto-enrolment, should consider setting up a personal pension.
A ‘stakeholder’ version is a good option because they carry low charges and allow contributions from as little as £20.
Savers can also stop and restart payments into the plan at any time without penalty. These pensions are offered by most big insurance companies.
STEP 4:
Ideally, pension savers should seek help from an independent financial adviser on the best way to save for retirement, which means paying a fee.
But those on low budgets and who are happy to make their own decisions can find free generic help from online services such as The Pensions Advisory Service at pensionsadvisoryservice.org.uk, Citizens Advice at citizensadvice. org.uk and The Money Advice Service at moneyadviceservice.org.uk.