People could put away thousands of pounds this year with a new Cash ISA savings challenge.
Savings challenges can provide a structured and manageable way for people to put away some cash – and theres many to get involved in, depending on the goal.
One of them is the ‘20% Cash ISA challenge’, and if people follow the rules, they could save as much as £1,979 this year.
Dan Coatsworth, investment analyst at AJ Bell, said: “Everyone loves a good challenge, whether that’s running a certain distance or being able to lift heavy weights after a few months in the gym.
“Why not extend that mantra to money where your efforts pay off handsomely, making you healthy and wealthy?”
Mr Coatsworth explained: “Your challenge is to increase your ISA contributions by 20% each month. Kick things off with a £50 contribution, on par with going out for a meal and a few drinks with friends.
“The second month’s contribution is 20% higher at £60 – you’re not having to sacrifice too much extra to meet that goal, and it has already taken your ISA balance into three-digit territory.”
Savers should continue increasing their monthly contribution by 20% each time. The monthly contributions over 12 months would look like:
- Month 1 – £50
- Month 2 -£60
- Month 3 – £72
- Month 4 – £86.40
- Month 5 – £103.68
- Month 6 – £124.42
- Month 7 – £149.30
- Month 8 – £179.16
- Month 9 – £214.99
- Month 10 – £257.99
- Month 11 – £309.59
- Month 12 – £371.50
Adding all of these contributions together amasses to a total of £1,979.
Mr Coatsworth noted that the final six months of the 20% challenge will be harder.
He said: “By month 12, you’ll need to find approximately £374 to hit the target. That’s going to take some serious budgeting which means you’ll need careful preparation and a good handle on your personal finances to get the challenge over the finish line.
“But don’t worry, as there is a neat trick to help you get the winner’s medal.”
Mr Coatsworth suggested starting the challenge in April.
If it were started in January, the largest amount of money required would fall in December, which is exactly when people are focused on buying Christmas presents. By pushing it back four months, the pressure point could be avoided.
He added: “There’s another compelling reason to start in April. It would mean the two biggest months of the challenge would fall in February and March, precisely the time when many people don’t have water or council tax bills to pay.
“Certain utility bills have 10 monthly payments and then two months when you don’t pay anything – typically falling in February and March as they are the end of the tax year.
“Take advantage of not having to make payments in those months and use the savings to support your 20% ISA challenge.”
Mr Coatsworth added: “With money, remember that inflation eats away at your spending power, so £50 saved today might not buy you as much a year later.
“Someone who simply saved £50 every month into an ISA for a year would have £600 after 12 months, excluding any interest or investment gains/charges. That’s great, but not a patch on the £1,979 you’d have from the 20% ISA challenge starting at £50 in the first month.”
