21st Century Saving what is it all about?

What is the story with savings apps?

Some of you will know that as well as writing Wills I am also a fully qualified and work self employed as a financial adviser. Recently I have noticed a few posts on my personal social media recently from friends talking about savings apps on their phones which are rounding up purchases or making automatic savings for them. A lot of people didn’t seem to understand exactly what they are and how they work which got me thinking is this what saving in the 21st century is going to look like? We already know that generation X love anything that is based on an app.

So Is this how generation X will be savings and what does it involve?

 

So how does it work?

This depends to an extent on the app that you are using there are two main ones in the UK market at the moment (October 2018) which are Plum and Chip.

Both Plum and Chip are connected to your current account and they use complex algorithms to calculate how much you can afford to save, both apps look to save money every 4 working days. You then authorise the saving and the money is withdrawn from your bank account and moved to your savings app.

 

So where exactly does the money go?

Chip is the easiest to explain so we will start there, the app is ring fenced by Barclays bank PLC and has an interest rate linked to it. The interest rate is set at 0% to start with and increases by 1% for each friend you introduce to Chip up to a maximum of 5%. Each 1% boost is valid for 12 months.

Plum savings are held in a protected virtual bank account which are administrated by a company called MANGOPAY, from the research I have done MANGOPAY provide payment technology to companies. The money saved is held in a Barclays instant access savings account.

Neither Plum nor Chip are part of the FSCS (financial services compensation scheme) however, if either of the app companies themselves went under you would be able to recover your money from Barclays, the real risk is if Barclays were to go under your money may not be protected.

 

Do they pay any interest?

If you opt for the basic version of both the answer is a simple no! They both have a basic interest rate of 0%.

Chip rewards you for introducing friends to saving which increases your interest rate by 1% for each friend you add up to a maximum of 5% and lasts for 12 months.

Plum gives you the option to invest your money in three different portfolios (there are charges and the money invested can go up or down).

Plum also has an option to invest with Ratesetter who have a 3% interest rate.

 

What does it cost?

Chip is free to use.

Saving with Plum in it’s interest free environment is free of charge. However, if you want to use Plum Investments, there is a fee of 0.15% of the value of your investments, and then a charge of up to 0.9% depending on the fund you choose to invest in. So up to 1.05% in charges annually. There is also a fee of £1 a month for Plum Investments.

 

Do I have an opinion?

Yes I have an opinion on most things 😊

These automated savings apps are fantastic for people who struggle to save or who are not used to saving and don’t know where to start. I don’t see them as a long term solution as for the free options there is no interest being added and I wouldn’t want a large fund in their due to having no protection from the FSCS.

 

Will I be using one?

Hell yes!!!! I have just registered with one of them and I will be using it to fund my ISA.

 

Thank you for taking the time to read through.

If you have any questions head over to our facebook page (D and K Wills and Estate Planning) or email me katherine@dandkwills.co.uk

Katherine Rowell