Increasingly, UK households are finding their finances a stretch. Research shows that 24 million individuals now live below the Minimum Income Standard (MIS).
How can you save and invest when many people are finding it difficult to meet their material needs and participate in society? Fortunately, there are still options to maximise your savings and investments in the coming months.
With a robust financial plan, taking back control and granting yourself more options and freedom is possible. Whether you want to build an emergency fund, save for a mortgage deposit or pursue another noble goal (e.g. save for retirement), here are some tips to help you in 2025.
Optimise Your Savings Strategy
Are you getting the most out of your cash savings?
Many people put excess cash into a regular savings account. This can sometimes be a good option. 2024 was a relatively good year for savers, with high interest rates.
However, in 2025, these rates could decline as the Bank of England explores cutting the base rate. As such, consider whether you need any money you are saving anytime soon.
If not, you could discuss “locking in” some of these savings with a financial adviser using a fixed-interest account. This could help preserve a higher interest rate.
However, be careful with placing emergency savings in a fixed account. If you suddenly need the money, you will likely face penalties for accessing the money (offsetting the benefit of locking in the higher interest rate).
Work Your ISAs
Are your ISAs effectively aligned with your savings goals?
Most people are familiar with the Cash ISA, which operates similarly to a regular savings account. The main difference is that any interest earned will be tax-free without using your Personal Savings Allowance (PSA).
However, many are unaware of the advantages offered by other ISA types. For instance, those looking to save for their first property could benefit from the Lifetime ISA (or “LISA”).
In 2024-25, you can contribute up to £4,000 to a LISA each tax year and get a 25% boost from the government (up to £1,000). If you are planning to buy with someone else (e.g. a spouse), you each get your own LISA allowance, potentially doubling your government bonus.
Use ISAs and Allowances Together
Your ISA lets you generate interest, capital gains and dividends tax-free within the “wrapper”. However, separate allowances also exist for each of these outside of the ISA structure.
As alluded to above, the PSA lets a basic rate taxpayer earn up to £1,000 per year from interest without tax. (£500 for higher rate and £0 for additional rate taxpayers) A tax-free allowance of £3,000 exists for capital gains, and a £500 allowance is available for dividends.
Are you coordinating your ISAs with these allowances to keep more of your hard-earned money? For instance, why keep your savings in a Cash ISA if the interest would fall within your tax-free PSA anyway?
Instead, opportunity costs could be mitigated by prioritising other assets for your £20,000 ISA allowance (e.g. equities and/or bonds). This leads us to our next set of tips – about investing!
Investing Tips for 2025
You will not find any advice here about picking stocks for 2025 or other “insider trading tips”. However, some time-honoured investing principles will likely be important for investors over the months ahead.
The UK is facing a “muted” year of economic growth, and the wider world is experiencing a lot of volatility as tariffs, higher prices and geopolitical tensions challenge the global order. In such times, it is easy to focus on negative headlines and avoid participating too much in the markets.
However, remember that the world has faced hard times before, and markets have gone on to rise over the longer term. Think of the Covid Crash in 2020 as a case in point.
When news of the pandemic hit investors in February, many people panicked, and indices plunged by 25% or more. However, as early as the summer of that year, markets were already on their way back up.
This is not to say that there is no risk with investing. Rather, it reminds us that volatility is “built into” markets. Investors need to take a long-term view to avoid making impulse decisions based on immediate price movements.
If you are not currently investing, consider starting small with a monthly contribution – either to your pension (e.g. at work) or to a general investment account. Even £50 per month will add up over time due to the power of compound interest. Over time, you can build on this.
For those already investing, take time to review your funds and wider strategy. Does your asset allocation still reflect your time horizon, risk tolerance and financial goals? Are you paying a fair price for your investment fees, and are you appropriately diversified?
Next Steps
If you’d like to make sure you’re taking the right steps to safeguard your financial future, please get in touch.
The value of your investments and pensions (and any income from them) can go down as well as up which would have an impact on the level of benefits available
The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
The content in this article was correct on 09/04/2025.
You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on savings, pensions, investments, mortgages, protection equity release and estate planning for teachers and non-teachers.
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