How to achieve your short-term savings goals

2 February 2022

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We all have money goals. They could be ambitious, like saving for your retirement or paying off your mortgage. They could be a bit smaller, such as saving for a new car, holiday, or maximising your emergency fund.

But whatever they are, your success in achieving your goals can come down to your ability to stick to a budget and your saving strategy. We’ve already tackled the issue of sticking to a budget, so now we will look at strategy, specifically for short-term money goals.

What is a short-term goal?

First, let’s clarify what we mean by ‘short-term.’ These goals are the ones you would aim to achieve in a few months or within the next five years. They are your more immediate expenses such as; an emergency fund, holidays, wedding, home improvements, cars.

Finding the right account for you

When it comes to short-term saving goals, it could be worth considering an easy-access savings account, a cash ISA, or a fixed-term savings account. If you’re not sure which type of account is right for you, you can compare the benefits: visit our ‘How to choose a savings account’ page to find out more.

Money you hold in savings accounts is protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person, per institution. Savings accounts could also offer more stability than investments, as they’re not affected by the ups and downs of the stock market.

But investing in stocks and shares could be a helpful part of a long-term strategy if you have more time to weather any potential losses, while taking note that there are still risks when it comes to investing. It may not be the best fit if you have a shorter time horizon for your money goals.

Saving in cash can also make it easier to access your money, which can be a consideration for short-term needs.

For those reasons, savings accounts can be more attractive for short-term goals. Although rates of return are usually lower than on the stock market, your money is safe, will gain interest, and could be easy to access.

Easy access savings accounts

You’re probably familiar with easy-access savings accounts, like the Marcus Online Savings Account. They can make saving and withdrawing your money easy, so could be an excellent option for short-term savings goals.

Life tends to throw the odd curveball, which is why their easy access nature could make them an attractive option. But it’s worth reiterating that although your savings are safe and easy to get hold of, you may not see a higher rate of return compared with what you could achieve on the stock market (although investing carries risks).

Cash ISA

The main difference between cash ISAs and other types of savings accounts is that ISAs offer tax-free interest, so you may get more for your money. There is a government-set limit to the amount you can save in an ISA each tax year, currently at £20,000.

There are different types of ISAs. Although you can take money out of a Cash ISA you hold with us, our Marcus ISA isn’t flexible in the same way as a Marcus Online Saving Account, because you can’t replace the money within your tax-free allowance. And when you withdraw, you may lose the tax-free benefit on that portion of your savings, which can be a consideration when thinking about where to stash money away for your short-term goals.

Fixed-rate savings accounts

What’s the difference between a fixed-rate savings account and an easy access savings account? A fixed-term account is precisely what it sounds like. It means that once your money has been deposited, it must remain in the account for the specified period, and you may incur a penalty fee if you withdraw early.

The benefit is that the interest is fixed, unlike most easy access savings accounts and cash ISAs, so you know exactly how much you’ll earn. However, you may not be able to add money in the middle of a term, so a fixed-term account may be better suited for a lump-sum deposit.

Combined approach

We mentioned earlier that your financial strategy could determine your choice of savings account. But that doesn’t mean you have to just choose one. Why not go for a combination?

Perhaps have your emergency fund in an easy access savings account so you can get at it quickly should an emergency arise.

If you’re saving for a car or holiday, it may be worth considering a cash ISA or fixed-rate account because you won’t need the money immediately. You will want to take note, though, of any potential restrictions that these accounts may have on when and how you can access your money.

The final word

All the savings options we’ve looked at could help you achieve your short-term savings goals.

If you think you’re likely to need immediate access to your money, then you could consider the flexibility of an easy-access savings account. If this isn’t something you need, a longer-term option may be better suited for your needs, such as a cash ISA or fixed-term account.

Mixing and matching may be better for you. Your financial goals are as individual as you are. There is no one-size-fits-all answer.

The content in this article is for information only and is not advice. All content in this article was accurate on the date of publication shown above.