Issue #002: The ONLY 5 Bank Accounts You'll Ever Need

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👋 Afternoon Gang,

Today, I want to discuss bank accounts, or more specifically, any account designed for storing money.

Ever since I started creating content back in 2020, the comments on my videos have consistently been filled with the following questions:

• What's the best investing platform?

• What is a high-yield savings account?

• Is having 17 bank accounts too many? - Yes, yes it is.

Well, today I'm going to answer all of these questions and more. I'll not only explain the types of accounts that are ideal for you but also reveal precisely where my money is currently held. Keep in mind that if you read this in three months, the details might be slightly/significantly different.

P.S. None of these accounts are sponsors; these are genuinely the places where I store my money!

📈1% Better Every Day

Where To Put Your Cash

#1 The Current Account.

You should consider this account as the backbone of your entire financial system. It's the account into which any money you receive will go before it's subsequently distributed into various other accounts, listed below. Because I treat this account like a train station where money flows in and out without much activity whilst inside, the primary aspects I focus on optimising are functionality and cost. In other words, I ask myself the following questions:

• Does the bank account have an easy-to-use and modern app?

• Is it easy to contact their customer services?

• Does it have zero fees (and an overdraft allowance if that's important to you)?

• Can I withdraw money for free?

• Is my money protected by FSCS (backed by regulators)?

• Is it easy to transfer money?

• Can I set up automated payments?

One thing you might have noticed missing from this list is the interest rate and any cashback or reward incentives. The reason for this omission is twofold: firstly, I do not use this account to store any of my money, so interest rates are pretty much irrelevant. Secondly, I conduct the majority of my spending using a credit card (we'll save that topic for a future newsletter), so debit card incentivised rewards do not benefit me.

Main Takeaway: Find an account that is user-friendly and won't give you any headaches because you will be using it extensively throughout your life!

Where's my money: I currently use a Barclays current account. Yes, it does come with some perks like access to a high-interest savings pot, but the main reason I use it is because the app is simple and easy to use!

#2 The Emergency Fund.

This is quite simply the single most important account that you will ever set up. It not only provides you with complete financial security but once established, it will give you more financial confidence than you have ever had before!

So what is it?

Simply put, this is your "Oh Sh*t" pot of money. It's the money that will rescue you when your boiler breaks down on the same day you accidentally scratch the car parked next to you. Instead of plunging yourself into unnecessary debt by covering those bills with a super-high-interest credit card, you will remember that you have an entire fund dedicated to handling these emergencies. But remember, this pot of money is only to be used in emergencies. It should not be dipped into simply because you feel like buying the latest iPhone.

Where should you store this money, and how much?

Start by setting aside one month's worth of living expenses (yes, that means sitting down with a pen and paper and calculating how much it costs to be you) into a high-interest easy access account. There's no point having it locked away in a 1-year fixed savings account. Once you've completed this step, work towards accumulating 3-6 months' worth of savings, depending on your risk tolerance. In my case, I'm self-employed, so I aim for 6 months, but this varies for each individual.

Main Takeaway: Save 3-6 months' worth of living expenses in an easily accessible, high-interest account dedicated solely for emergencies. DO NOT TOUCH IT FOR ANYTHING ELSE!

Where's my money: Currently, I have approximately £15-20k (equivalent to 6 months of living expenses) in Marcus by Goldman Sachs, earning roughly 4.5%. I understand that I could get slightly higher interest rates elsewhere, translating to an extra £10ish per month, but for now, I am content with this choice!

#3 The Short Term Savings Account.

A lot of the online hype suggests that you should invest super aggressively from a young age. However, in terms of my personal investing style, I'm adopting a long-term approach. This means that I need another place to allocate my shorter-term savings. Common practice suggests that you should lock away investments for at least 5-10 years. This leaves a big question mark over what to do with the money you're saving for that big holiday coming up next year, a wedding planned in 3 years, or, in my case, trying to save for a house deposit. For such cash, you should aim to find the highest possible returns, and how you do this depends on your personal circumstances. Some places you might want to look include:

Easy Access: Offers lower returns than fixed but allows you to access your money whenever you want.

Fixed Term: Involves locking away your money for a 1/3/5-year period in exchange for higher returns.

Cash ISAs: Ensure any returns you earn are tax-free but generally offer lower returns than easy access accounts and have an annual cap of £20k (across all types of ISAs).

Lifetime ISAs: Offer a 25% bonus on money saved for a first-time property or retirement but come with various rules you should familiarise yourself with if interested in this product (see what I did there 😉).

Premium Bonds: The UK's favorite lottery saving system. There's potential for super high returns (£1 million up for grabs), but average returns are lower than those of easy access accounts.

Other: There are a variety of other products for more specialised scenarios that you can read about here.

One thing I want to mention at this point is if you are currently earning a 0.5% return on your money and are hesitant to move to a higher interest rate account in case a better one appears, then please stop doing this. Simply find yourself an easy access account and switch later again if you need to later!

Main Takeaway: Savings intended for use within 5 years need to be placed in a secure product with the highest possible interest rate.

Where's my money: As I'm currently keeping a close eye on the housing market, I've chosen an easy access savings account with Chip, paying me over 4.8%. The reason I'm not using an ISA is that I plan to use my £20k/year allowance in my Stocks and Shares ISA, which I will explain more about in section 4.

#4 The Investing Account.

Okay, we're finally onto my favourite type of account, the one that can build wealth if used in the correct way, but also unfortunately, the one which people are least educated about. For me, investing is where my long-term savings go, the money I know I won't be touching for the next 5/10/15 years minimum.

But why invest at all when savings rates are so good?

Well, even though interest rates are amazing, the best ones in the market right now still aren't beating inflation. That means that despite the rates being super high, they are still causing your money to lose value! On the other hand, investing in the US stock market has returned on average:

• Past 5 years: 11.33%

• Past 10 years: 12.39%

• Past 20 years: 9.75%

• Past 30 years: 9.90%

Okay, so now we know about the importance of investing over the long term, the next common question I often hear is:

"I barely have enough money to invest now, can't I start when I'm 40?"

Well, let me share with you a little case study. Take two people who both invest in the stock market under the following parameters:

• Get 10% average returns

• Invest £200 per month

• Invest until 65

• Person A starts at 18

• Person B starts at 40

Well, at the end of that time period, person A would have over £2,600,000 at 65, while person B would have £267,000. In order for person B to catch up with person A, they would need to put away £1,950 per month (that's over 9 times more despite only investing for half the time period).

Quick Note: As mentioned in section 3, the best place to start investing is inside a Stocks and Shares ISA as this will protect your future earnings from being taxed. Imagine having made that £2.6 million at 65 and then having to pay half of it back to HMRC 🤦‍♂️.

Quick note (part 2): There are a lot more caveats when it comes to investing which I will cover in future editions of this newsletter, but it's worth noting that past returns don't guarantee future results!

Main Takeaway: Invest as early and as often as you can into diversified funds to maximize returns and consistently beat inflation. Oh, and start in a Stocks and Shares ISA in the UK or a ROTH IRA in the US.

Where's my money: This year, I am using Trading 212 for my Stocks and Shares ISA as they had a 1% cashback offer back in April and have extremely low costs. Prior to that, for the past 3 years, I have been using Vanguard, who are one of my favorite all-time providers!

#5 The Pension.

Ah, finally, the dreaded pension. I'm still not sure how this hasn't made it onto school curriculums given how vitally important they are, so until that day comes, you're going to have to make do with reading this newsletter. Currently, the average pension in the UK at retirement is £100k, which roughly pays out £4k per year if withdrawn sensibly. If you are reading this thinking you might need more than £4k per year once you retire, then it's time to start taking your pension seriously right now.

Let's start with how a pension differs from investing in a stocks and shares ISA:

• You cannot withdraw that money until you're 55 (rising to 57).

• When you do withdraw, you can take 25% tax-free before you are taxed on the rest according to the income you withdraw.

• You can put in up to £60,000 per year or 100% of your yearly income, whichever is lower.

So why bother with investing in a pension when you can just invest in a stocks and shares ISA?

Well, there are two massive benefits that you get with a pension that an ISA can't quite offer:

• If you're employed, the government will top up your contribution according to your tax band. For example, if you earn £40k and you contribute £10k to your pension, you'll get a 20% top-up.

• A lot of employers will match your pension contribution up to a certain amount. Now, in what walk of life can you immediately get a 100% return on your money? (aside from gambling, which we don't do here)

Cool, so we're all in agreement that pensions are pretty important, and we fully understand the benefits of contributing to them. But how much should we be putting away? My personal belief is that as a minimum, you should be maximising your employer's contribution (that might have been slightly confusing to read). But standard practice is to take your age and cut it in half; that is the percentage of your salary that you should be contributing toward your pension, including any matched contributions and government top-ups, for the rest of your life. So if you started contributing at 20, this would be 10%; if you started at 40, it would be 20%. I prefer to contribute less of my salary, so if it were up to me, I'd start sooner!

Main Takeaway: Contribute your age divided by 2 to your pension and make sure you take full advantage of employer match schemes.

Where's my money: Seeing as I'm self-employed, my money is tucked away in a SIPP (I'll explain that another time). I'm 26, and I'm putting away 15% of my income into my pension - going hard!

There we go folks - the 5 accounts that store all of my money! I know that some people will have differing opinions on where they store their money, but for me the priority is to not only have the best accounts but to simplify the number that I have!

That’s all for this week, thanks again for reading!

🤑YOUR MONEY

This Week’s Headlines

🏠 House prices see biggest yearly decline since 2009. House prices are 5.3% lower compared to August last year in the biggest annual decline since 2009, according to Nationwide.

✈️ Airlines could face crackdown on hidden fees, as part of a new government plan to improve transparency for people shopping online.

📉 Will UK mortgage rates go down in 2023? HSBC and Natwest are the latest lenders to cut mortgage rates across a range of products.

🎬 New Content

Inflation Explained - in Less than 6 minutes. I've noticed recently that despite inflation being the hottest finance topic in the news for well over a year at this point, a lot of people have no idea what's going on. So let me explain it to you in less than 6 minutes 😊

DISCLAIMER: None of the above is financial advice. This newsletter is strictly education and should not be taken as investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and always do your own research.