A guide to short-term savings

What are short-term savings? 

Short-term savings refer to funds set aside for financial needs and goals that you expect to cover in the near future. Typically, these savings are intended for use within the next few months to a few years (usually less than three years). This differs from long-term savings, which are generally reserved for goals set further into the future, like buying a home or saving for retirement. 

  

What could you be saving for? 

Short-term financial goals are important for managing your finances, helping you stay financially stable, build good money habits, and set the foundation for long-term success. 

 

While short-term financial goals depend on your individual circumstances, common goals include:  

• Building an emergency fund - having savings set aside for unexpected expenses, like car repairs, medical costs, or home maintenance. Some people find this provides peace of mind 
• Paying off short-term debt - like credit card and personal loans. 
• Saving for a specific purchase – you may be looking to save money for a particular item or future event like a mobile phone, laptop, car, holiday or wedding.  

When setting your personal short-term goals, think about what’s most important and achievable for you.  

  

Tips for setting and planning short-term savings goals 

Setting a short-term savings goal can seem daunting. But breaking it down into smaller steps makes it easier to keep track of your progress and adjust your plan if you need to. Here are five steps to follow when setting and planning your goals: 

 

1. Decide on a clear goal  

First, decide what exactly you’re saving for. Figuring this out will help you decide how much money you want to save. From here you can figure out a realistic timeline that would work for you based on things like your salary and monthly expenses. Setting clear goals will help you stay motivated and on track with your savings. You can also use free budgeting apps to track your progress.  

 

2. Choose the right savings account  

 A short-term savings account is designed for easy access and low risk saving. You can find accounts which offer some flexibility, like allowing withdrawals, while earning interest. Choosing the right account can support you in reaching your financial goals.  

 

If you think you may want to access your money soon, look for an account with a shorter term, or one that allows you to withdraw your money easily. Look for the interest rates and check if there are any fees (like withdrawal charges or maintenance fees). You might also find it helpful to set up separate savings accounts or savings pots for different goals to keep track of your progress. 

 

3. Set a monthly savings target 

A step-by-step approach can make your savings goal more achievable. Once you have a target amount, choose a realistic deadline and monthly goal based on how much you think you’ll be able to set aside each month. To set a monthly target you’ll need to divide your savings goal by the number of months until your deadline. So, if you’re looking to save £1,200 in six months, you’d need to set aside £200 every month. 

 

4. Automate savings if possible 

Automating your savings can simplify the process and keep you on track. One way of doing this is by setting up a direct debit or standing order to transfer a fixed amount into your short-term savings account every month. This way you’ll know how much you have left for the rest of the month and you’re less likely to accidentally dip into your savings. 

 

5. Track progress and adjust as needed 

Review your savings regularly to check your plan is still working for you. If your circumstances change, you may need to adjust your monthly savings target or timeline.  

 

A good practice is to check your savings at least once a month to compare actual savings versus your planned goal.  

  

What can you do with short-term savings? 

If you’ve saved up some money but no longer need it for a specific purpose – or if you have funds left over – there are a few ways to make the most of your savings: 

• Put it in a high-interest savings account - you can keep earning interest for the future until you decide what to do with your savings. 
• Use it to pay off short-term debts – Reducing outstanding debts can lower financial stress and help you save on interest payments over time. 
• Consider premium bonds – While there’s no guaranteed return, premium bonds offer a chance to win tax-free prizes while keeping your money accessible. 
• Consider investing – If you don’t need to access your savings straight away and are comfortable with some risk, short-term investments like low-risk funds or short-term bonds could be an option. Their value can go up or down, so it’s important to consider your timeframe and risk level before deciding. Read our guide on saving vs investing to learn more. 

 

What makes a good short-term savings goal? 

Short-term savings goals will vary from person to person so it’s important to choose goals that are realistic and achievable for your financial situation. For example, saving £2,000 for a holiday over the course of 12 months might be reasonable for some while others might need a different timeframe to save the same amount. Setting a goal that fits your budget and timeframe can help you stay on track without feeling overwhelmed. 

 

Key takeaways 

Your short-term savings should be tailored to what suits you. Making sure your plans are practical and achievable is the first step to staying motivated – and actually hitting your savings goals. 

 

Keeping your money in a secure and accessible savings account can help you earn interest while allowing you to access your money when you need it. Regularly reviewing your progress and adjusting your goals if you need to can help you stay motivated and in control. 

 

Plan wisely and you can make the most of your short-term savings, working towards your financial goals with confidence.