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FOOL SCHOOL
After you've paid off your debts!
If you have debts, you do not need a savings account. Think about it - a 19% interest rate on £1,000 of credit card debt versus a 5% interest rate on the same amount in savings? You're not saving money, you're losing it. You'd be daft to have savings and be borrowing money at the same time.
Remember, too, that any interest you earn on your savings will most likely be taxed, while the interest you pay on your debts comes out of your after-tax income. There's simply no point in paying vast amounts of interest on money that you owe if you're reaping much smaller returns on the money that you're saving.
Also, paying off debt automatically gives you a guaranteed return. If you're not paying interest, then you've immediately saved that interest. That's a pretty good return on your investment. So, if you've got the opportunity to get shot of your debts by using your savings, then that's almost always the route to take.
Whenever you can
Cash is the ultimate in liquidity and if you find you never need to draw on it in a passing crisis, well, then it just means that you've got more to spend on the fun things in life.
You might think you could survive with the use of a credit card in an emergency if you really had to. Or that you can pay for that holiday in the Caribbean using plastic. But those bills will need to be paid off at some point and you could find yourself struggling for much longer than necessary - and paying through the nose for it too. By all means, have a line of credit as a last resort but, since foresight is better than hindsight, you'd be better off with some savings to start with.
You may also think you have insurance to cover calamities such as a job loss or a boiler repair. But the money you spend on income protection insurance possibly wouldn't be paid out until you've been unemployed for a few months anyway (check the terms), and we've always said that extended warranties are almost always a waste of money. The whole point of having a savings fund is that you're insuring yourself sufficiently against particular emergencies, thus doing away with the need for certain types of insurance cover. Bear in mind that this outlay is yours forever too so, if you never have to access it, you've still got a nice lump sum to call your very own.
Really you should plan for the worst and hope for the best and that means thinking about what sort of 'worst case scenario' could have a potentially damaging effect on your long-term finances.
Stating the Obvious
You need to save up for foreseeable expenses. Holidays, new cars, weddings, university fees are mostly predictable. You've got two choices: 1) save up and earn interest, or 2) borrow the money and pay (at a much higher rate) interest. Seems like a no-brainer to us.
These are all occasions where you can plan ahead, work out how much you'll need and start saving for it within the relevant time span. How long you've got will have a bearing on where you save for these expenses. If it's very short term a simple high interest easy access account might be the best place. If it's over a year or two, you might want to look at notice accounts or fixed rate deposit accounts.