Ready for a rainy day? Time to get a financial umbrella

More than a quarter of British families have no savings or investments to fall back on in times of emergency, according to new research from Abbey. With unemployment nearing 2.5 million and set to go higher, being one wage packet away from the breadline is a sobering thought.

"It is vital to have a contingency fund to cover the uncertainties of life. Without this, it is all too easy to fall into debt through using a credit card or running up an overdraft," says Philip Pearson from Southampton based independent financial adviser (IFA) P&P Invest.

The big question is: how much should you put aside? As a guide, experts recommend keeping at least three times your net monthly income as a cash fund, taking all mandatory expenses into account including food, mortgage or rent payments, utilities, medical bills, transportation and insurance. This is merely a guideline, however, so the amount you should put away will depend on other factors.

"Do you have one household income or two? Do you have any ill health insurance in place? Are you paying for private schooling? How big is your mortgage?" asks Jason Witcombe, from IFA Evolve Financial Planning.

Once you have a good idea of what you would need to live on for at least three months, it's time to decide where to put your money. By its very nature, a rainy-day fund must be liquid and stable enough to allow easy access.

Unfortunately, the best deposit returns on the market are offered by fixed-rate investments such as the five-year bond from Skipton Building Society, which pays 5.35 per cent on deposits of at least £500. By comparison, the top no-notice account from West Bromwich Building Society pays a far less rewarding 3.35 per cent on deposits of £100 or more and also includes a 0.6 per cent bonus until 30 December 2010.

The top branch-based savings accounts paint a similar low-rate picture. Nevertheless, these accounts can make a useful part of a rainy day-fund because you can turn up in person at a branch and use your passbook to access your money. The market leader is currently a 3.35 per cent account with West Bromwich. A regular saver can offer you a better balance between high interest and access. These have the added bonus of forcing a more disciplined approach to saving, and you can set them up using a standing order.

"Those savers looking to start a savings safety net should consider opting for a regular saver. Rates are higher than on a standard savings account as how much you can invest each month is restricted," says Michelle Slade from financial information firm Moneyfacts.

Buckinghamshire Building Society holds the top spot for regular saving with its Chiltern Gold Mine account, paying 5.1 per cent, but this does not allow withdrawals. Norwich & Peterborough Building Society pays 5 per cent and allows one withdrawal a year.

It's also a good idea to use up your tax-free ISA (Individual Savings Account) allowance. You can save up to £3,600 in a cash ISA each tax year (£5,100 for the over-50s) and from next year, that increases to £5,100. Better rates are offered on fixed-rate ISAs which generally don't allow access without incurring an interest penalty.

Life and Style
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
Arts and Entertainment
Up my street: The residents of the elegant Moray Place in Edinburgh's Georgian New Town
tvBBC's The Secret History of Our Streets reveals a fascinating window into Britain's past
Albus Dumbledore, the headmaster of Hogwarts School of Witchcraft and Wizardry has been the teaching profession's favourite teacher
Luis Suarez looks towards the crowd during the 2-1 victory over England
Life and Style
Cheesecake frozen yoghurt by Constance and Mathilde Lorenzi
food + drinkThink outside the cool box for this summer’s frozen treats
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Sir Bradley Wiggins removes his silver medal after the podium ceremony for the men’s 4,000m team pursuit in Glasgow yesterday
Commonwealth games Disappointment for Sir Bradley in team pursuit final as England are forced to settle for silver
Alistair Brownlee (right) celebrates with his gold medal after winning the men’s triathlon alongside brother Jonny (left), who got silver
England's Jodie Stimpson won the women’s triathlon in the morning
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Junior Research Analyst - Recruitment Resourcer

    £18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...

    Senior Analyst - Financial Modelling

    competitive: Progressive Recruitment: This really is a fantastic chance to joi...

    Associate CXL Consultant

    £40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

    Business Anaylst

    £60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

    Day In a Page

    Backhanders, bribery and abuses of power have soared in China as economy surges

    Bribery and abuses of power soar in China

    The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
    Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

    Highland terriers steal the show at opening ceremony

    Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
    German art world rocked as artists use renowned fat sculpture to distil schnapps

    Brewing the fat from artwork angers widow of sculptor

    Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
    BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

    BBC takes viewers back down memory lane

    The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
    Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

    Nicolas Cage shines in low-budget drama Joe

    Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
    How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

    Make your own ice lollies and frozen yoghurt

    Think outside the cool box for this summer's tempting frozen treats
    Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

    Fiesta is UK's most popular car of all-time

    Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
    10 best reed diffusers

    Heaven scent: 10 best reed diffusers

    Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
    Commonwealth Games 2014: Female boxers set to compete for first time

    Female boxers set to compete at Commonwealth Games for first time

    There’s no favourites and with no headguards anything could happen
    Five things we’ve learned so far about Manchester United under Louis van Gaal

    Five things we’ve learned so far about United under Van Gaal

    It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
    Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

    Screwing your way to the top?

    Good for Lana Del Rey for helping kill that myth, says Grace Dent
    Will the young Britons fighting in Syria be allowed to return home and resume their lives?

    Will Britons fighting in Syria be able to resume their lives?

    Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
    Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

    Beyoncé poses as Rosie the Riveter

    The wartime poster girl became the ultimate American symbol of female empowerment
    The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

    The quest to find the perfect pair of earphones

    Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
    US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

    Meet the US Army's shooting star

    Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform