Building number confidence: Budgeting
6. Comparing and selecting the best deals
To save money, and remain within your budget, make sure to compare similar deals for goods and services before deciding which to purchase.
The main consideration, of course, is likely to be the price, however there may be other considerations which make one offer more attractive than another.
Comparison tables
TA useful tool for comparing financial options is a comparison table. This typically lists the provider, products or services in the first column, with features and characteristics detailed across the rows.
Here is an example comparing sim cards:
| Provider | 5G Data | Mins/texts | Contract | Monthly cost |
|---|---|---|---|---|
| Purple Phone | 5GB | Unlimited | 1 month | £4.50/mth |
| MagiCall | 10GB | Unlimited | 6 months | £4.80/mth |
| iBlether | 50GB | Unlimited | 12 months | £4.99/mth |
Let's look at some examples of products and services you might want to compare.
Shopping
It's possible to save quite a bit on your supermarket shop by taking advantage of bulk-buying, special offers and choosing the store's own brands rather than named brands. Signing up for a store loyalty card, where available, can also provide extra savings.
For other purchases, shopping around or using price comparison websites can help you to find the best deal.
Budgeting check
Mairi always buys named brands for the following items, but how much could she save if she bought the store's own brands?
| Product | Purchased monthly | Name brand (£) | Store brand (£) |
|---|---|---|---|
| Baked beans | 8 | 1.40 | 0.42 |
| Cornflakes | 4 | 2.19 | 0.88 |
| Crisps (6 pack) | 4 | 2.15 | 1.00 |
Let's first compare the total cost of each item, for both the name brand and the store brand.
| Product | Name brand | Store brand |
|---|---|---|
| Baked beans | 8 x 1.40 = £11.20 | 8 x 0.42 = £3.36 |
| Cornflakes | 4 x 2.19 = £8.76 | 4 x 0.88 = £3.52 |
| Crisps (6 pack) | 4 x 2.15 = £8.60 | 4 x 1.00 = £4.00 |
| Total cost | £28.56 | £10.88 |
As you can see there's quite a difference in the total monthly cost of each. Changing brand for just these 3 products could save Mairi £17.68 on her monthly shopping bill.
Savings accounts
Savings accounts are types of bank, or building society, accounts which pay you interest on the money you have invested with them. This is usually a percentage of how much money you have in your account over a full calendar year.
The higher the percentage rate, the more interest you can expect to earn on your savings. However standard interest rates are variable, meaning they can rise or fall, depending on the base rate set by the Bank of England.
Some accounts offer a fixed rate, or a higher interest rate if you agree to certain conditions. For example, you may be required to pay in a minimum sum each month, or be restricted on how much you can withdraw. You might have to agree not to withdraw any money at all from your account for a fixed period of time. These types of accounts can help you save regularly towards a specific goal, such as a large purchase, however, you may be charged penalty fees if you are unable to meet the restrictions.
An 'instant access' account, with a lower interest rate, may be the better option, if you are creating a contingency fund, for example, and need to know that you can access your money at any time.
AER
The AER (Annual Equivalent Rate) enables comparison of savings accounts by indicating the percentage of interest you will receive each year, taking into account compound interest (interest paid on interest already accumulated).
For example,
Year 1: You deposit £2000 into a savings account offering 2.5% AER, and leave it untouched for a year.
Opening balance: £2000
Interest earned: £50
Balance including interest earned: £2050
Year 2: You decide to leave your money in the same account for another year, at the same rate. You are rewarded with interest on both your initial £2000 deposit, plus the £50 interest you received in year 1.
Opening balance: £2050
Interest earned: £51.25
Balance including interest earned: £2151.25
Note: AER does not take into account any fees you may be charged for accessing or managing your savings.
What is APR and how does it differ from AER?
APR stands for Annual Percentage Rate. It shows the total cost of borrowing money over a year, including interest and certain fees. You’ll see it used for things like loans, credit cards, and mortgages. APR helps you compare the overall cost of different borrowing options.
So, in short:
APR is used for borrowing – it shows the cost of a loan or credit.
AER is used for saving – it shows the return you’ll earn on savings.
More information about different rates, including Representative APR and Personal APR, can be found in the Glossary.
Budgeting check
Compare the following savings accounts. Which one offers the best deal for depositing £5000, and leaving it for 1 year with no withdrawals?
| Account name | AER | Fees |
|---|---|---|
| Bluebell Savings | 2.6% | £5.00 admin charge to open account and £12.50 annual charge |
| Heather Savings | 2.3% | No charges in year 1, £9 per annum thereafter |
Let's compare the balance in each account at the end of a year.
Bluebell Savings: Interest earned £130 (less £5 to open account and £12.50 annual charge) = £5,112.50
Heather Savings: Interest earned £115 (no charges in year 1) = £5,115.00
Heather Savings, with no fees for the first year, and no admin charge for opening the account, has come out on top with £2.50 more than Bluebell Savings over the same (first year) period of the account.
Note: Although Heather Savings offers a smaller annual charge, Bluebell Savings' higher interest rate is likely to make this the more profitable account in subsequent years.
Insurance
An insurance policy protects you financially by covering costs after events like illness, theft, or accidents.
Always shop around for the best deal for your car or home insurance, and when you receive an annual renewal quote, check that your current provider is still offering the best deal.
Think about how much voluntary excess (the money you agree to pay towards any claim you might need to make) is manageable. You might get a cheaper rate by agreeing to pay, for example, the first £500 of any damage to your car, but would you easily be able to do so?