Help your home budget flourish! Five ways you can grow your money now that spring finally brings some relief to the cost of living crisis

With snowdrops and tulips finally coming into color, the garden isn’t the only place where green shoots are sprouting. After what seemed like an endless season of skyrocketing living costs, sky-high interest rates and falling living standards, things are finally starting to look better for millions of people’s household budgets.

Many are still struggling and are now in debt and have their finances so tight that they cannot save. Rising council tax bills and stealth taxes keep the pressure on.

But millions have turned the corner. Inflation has fallen to a two-and-a-half-year low of 3.2 percent, official figures revealed last week. They have even lowered the prices of some items: furniture, meat and chocolate cookies.

Workers will receive their first expanded pay packages under this month’s National Insurance cut, from 10 per cent to 8 per cent from April 6. And many are receiving pay rises in real terms, as annual wage growth was stronger than expected at 6 per cent in the three months to February.

But after being forced to manage household budgets with a siege mentality for so long, millions of households have yet to switch gears, exclusive figures seen by Wealth from investment platform Hargreaves Lansdown and savings provider Aldermore suggest.

So how can you help move your finances from the cost of living crisis to a more hopeful spring?

1. Shift savings to higher rates

An increasing number of households finally have a little extra left at the end of each month to save for a rainy day. The UK savings rate – which is the percentage of people’s income they save – has recovered so far this year to 8.5 per cent from 6.6 per cent last year, according to Aldermore.

The number of people who feel financially comfortable has increased by 12 percentage points to 38 percent, from 26 percent last year. However, because millions of households have only recently gained this ability to save, many are simply letting their extra savings accumulate in low-interest checking or savings accounts, some of which pay a pathetic percentage point or two.

Transfer your money to one of the best easy-access accounts and you could earn more than five percent interest instead. Ulster Bank, for example, pays 5.2 per cent on balances over £5,000, and Cynergy Bank pays 5.01 per cent on balances over £1. Even better, transfer excess funds into a cash Isa, where the interest earned is tax-free. Chip offers 5.1 per cent on balances over £1 and Plum 5.17 per cent on balances over £100.

2. You can afford to fix it for longer

When things are uncertain, it is more difficult to make long-term financial decisions. Understandably, savers have become more comfortable depositing money into easy-access accounts that they can access in an emergency, rather than into fixed-rate accounts where the money is locked until the end of the term.

But as things stabilize a bit, it may be worth considering locking yourself away for longer.

As inflation moves closer to the Bank of England’s 2 percent target, the first interest rate cut moves closer into sight. This is because the Bank uses interest rates to align with inflation and therefore when it falls it eliminates the need for higher rates.

Financial markets predict two interest rate cuts this year, from 5.25 percent to 4.75 percent, the first of which will come this fall.

When the base rate falls, the interest rates offered on fixed-rate bonds are also likely to follow. If this is the case, it might be worth fixing it now to lock in a higher rate.

If you’re worried about losing access to your cash, opt for an Isa. These can always be closed, even before the deadline ends.

You would lose interest and could lose the tax-free status of your cash, but at least you have the peace of mind of knowing you could get it in an emergency.

Shawbrook Bank offers a one-year solution with a rate of 4.71 per cent on balances over £1,000. If you fix it for three years you’ll pay 4.4 per cent, five years and you’ll get 4.17 per cent. If you lock it in for seven years, you could get 3.56 percent.

Remember that new rules that came into force on April 6 allow you to open multiple Isas within the same tax year, so you can split your money between easy-access and fixed-rate versions.

3. Think long term and invest

As a general rule, experts tend to suggest accumulating a cash fund worth around three months of expenses to have in case of an emergency.

So if you’re saving for something in particular that you’ll need money for in the next five to ten years, you should probably save it in cash, too.

But anything you don’t need to touch any longer, you might consider investing in. Interest paid on savings has compared favorably to investment returns in recent months because interest rates have been so high, but this won’t last forever.

Figures from Hargreaves Lansdown show that high earners in particular have more than enough money saved and could therefore also consider investing.

Up to 96 percent of the top fifth of earners have three months of expenses saved. They now have just over £16,500 in their current account, £31,000 in savings accounts and have £750 left over at the end of the month. If that £750 was paid into a stock Isa each month, and grew at 5 per cent over 20 years, it could produce savings of £308,275 that could be withdrawn tax-free, according to calculations by Hargreaves Lansdown.

Sarah Coles, your head of personal finance, says: “If you stopped investing regularly during more difficult times, you should consider restarting investments.”

4. Remember to increase your pension

When managing your finances in the present is difficult enough, it’s easy to let long-term pension savings fall by the wayside.

But if you receive a bonus or raise, it might be a good time to think about increasing your contributions. According to Aldermore, the number of people receiving a bonus has almost doubled in the last six months, from 12 to 20 percent.

If you were lucky enough to have a surplus income of £750 a month and put it into a pension benefiting from tax relief, you could build up a fund worth £385,344 in just 20 years, according to Hargreaves Landown. This means that your investments grow 5 percent per year.

5. Buy an umbrella for a rainy day

As the financial outlook improves, keep an eye out for that storm cloud in the distance and prepare as best you can.

It is almost impossible to predict when it will arrive and what will cause it. For example, few experts saw this cost-of-living crisis coming, caused by the war in Ukraine and a global pandemic, among other factors.

If you find the pressure easing, consider shoring up your financial strength now by paying off debt where you can, building up that emergency fund, and making the most of your savings.

After an endless cost of living crisis, green shoots are finally emerging. So, as inflation falls and wage growth is stronger than expected…