What are interest rates?

Interest rates are basically the price of borrowing money, or the reward you get for saving it. In the UK, the Bank of England sets something called the base rate, which influences how much banks charge on loans or pay on savings.

For example, if the base rate is 5%, your bank might offer a mortgage at 6% or a savings account at 4%. When rates go up, borrowing gets more expensive, but saving becomes more rewarding.

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Why do central banks change the interest rate?

Central banks, such as the Bank of England (UK), Federal Reserve (US) and European Central Bank (EU), adjust interest rates to keep inflation under control. They do this to try and maintain economic stability. 

• If inflation is rising too fast, rates are increased to cool spending.
• If the economy is slowing, rates are lowered to encourage borrowing and investment.

The goal is to strike a balance by encouraging growth without letting inflation get out of hand.

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How is the interest rate set?

In the UK, the Monetary Policy Committee (MPC) of the Bank of England meets around eight times a year to review economic conditions and vote on the base rate. They consider:

• Inflation (measured by CPI)
• Employment data
• Economic growth (GDP)
• Global market conditions

The rate they set affects everything from mortgage repayments to business investment decisions. 

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What happens to markets when interest rates rise?

Higher interest rates usually have a cooling effect on the stock market. This can include:

• Increased cost of borrowing, which can reduce company profits and consumer spending.
• Growth stocks, especially in tech or early-stage companies, often fall as future earnings are discounted more heavily. Understand growth investing. 
• Bond prices typically drop as new bonds offer better yields, making older ones less attractive.

Some sectors, like banks through savings accounts and products, may benefit, but overall, rising rates can signal tighter financial conditions. 

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What happens to markets when interest rates fall?

Falling interest rates usually encourage investment and spending. This can include:

• Companies can borrow more cheaply to grow operations.
• Consumers may spend more as loans and mortgages become affordable.
• Stocks often rise, especially in growth-focused industries.

Lower rates tend to push investors to seek better returns in the stock market as savings accounts offer low interest rates. 

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How can investors adapt to interest rate changes?

Adapting to interest rate shifts is key to managing risk and opportunity when it comes to investing. Some steps investors can typically take are:

• Diversify across various asset classes to reduce sensitivity to rate movements.
• Research and consider dividend-paying stocks or defensive sectors (sectors that typically provide essential goods and services that consumers will continue to purchase regardless of the economic climate) during periods of high rates.
• When rates fall, growth stocks and longer-duration bonds may offer better returns.
• Review your investment time horizon: short-term savers may prefer fixed-income products, whilst long-term investors could ride out market cycles and potential, although overall investing is for the medium to long term (5 - 10 years+). 

Being aware of how monetary policy affects asset prices can help investors stay aligned with their goals. 

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Interest rates and investing impact summary

Interest rates are a powerful economic lever that directly and indirectly shape the investment landscape.

For new investors, understanding their effects is a crucial building block for making smart, informed decisions. Learn about investing basics here. 

Next up: learn how stock markets tend to behave during a recession, and what that means for investors. 

What is portfolio management? 

Portfolio management is the ongoing process of you selecting, monitoring and adjusting your investments to meet your financial goals.

It’s not just about choosing a few investments and crossing your fingers – it’s about seeing the full picture and making smart, informed choices.

That means thinking about the mix of investments you own (also called asset allocation), how much investment risk you’re taking, and making regular adjustments as life or market conditions change.

Done well, it can help you grow your wealth steadily while keeping risk at a level you’re comfortable with.

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Investment portfolio management examples

The following portfolio management strategies are commonly used:

Cautious portfolio: Might include a large portion of bonds and cash, with a smaller slice in equities.
Great for: people close to retirement or those who don’t want much risk.
Balanced portfolio: Typically splits investments between equities and bonds, aiming for moderate growth with manageable risk.
Great for: long-term investors who want a bit of both worlds.: Heavier on equities (including global and emerging markets), and lighter on bonds or cash. 
Great for: investors with a higher risk tolerance and a longer time horizon.

These are just examples; your ideal portfolio depends on your goals, timeline, and how much market fluctuation you’re okay with.

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DIY investing vs managed portfolios

There are two main tracks you can go down with your portfolio:

‍DIY Investing

You pick and manage all your investments yourself.‍

Great if: you like having full control, enjoy researching markets, or want to tailor things really specifically. But it requires time, confidence, and a steady hand when markets wobble.

Managed Portfolios

You choose a risk level, and a provider (like Chip) builds and maintains a diversified portfolio for you.‍

Great if: you want a more hands-off approach, but still want exposure to the market. You’ll usually pay a small fee for this convenience, but it can be well worth it if it helps you stay invested long-term.

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What is asset allocation & why it matters?

Asset allocation is the mix of different asset classes in your portfolio – typically things like equities (stocks), bonds, cash, and sometimes alternative assets like property or commodities.

Getting the mix right is crucial. Why? Because it’s one of the biggest factors that affects your portfolio’s overall risk and return.

• More equities – higher potential returns, but also more ups and downs.
  
• More bonds – lower risk, but also lower growth.
  

Your ideal allocation depends on your goals and how long you’re planning to invest. This is not set in stone, and it can (and should) shift over time.

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How to rebalance your investment portfolio

Over time, some of your investments will grow faster than others, which means your portfolio can drift away from your original asset allocation. That’s where rebalancing comes in.

Rebalancing means adjusting your investments to bring them back in line with your target allocation.

For example, if stocks have surged and now make up 80% of your portfolio instead of your intended 60%, you might sell some and buy more bonds or cash-equivalents.

Some managed portfolios (like what’s listed on the Chip app) automatically rebalance for you. If you’re doing it yourself, you might want to set a calendar reminder every 6 or 12 months to review your allocation.

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Understanding behavioural investing & common mistakes

When it comes to investing, your emotions can be your worst enemy. Many investors panic-sell when markets fall, or chase after the latest stock or trend, only to end up buying high and selling low. 

This is known as behavioural investing, and it’s often where people slip up. The majority of investment gains are dampened by a degree of investor error, and generally the less decisions you can make, the better. 

The next guide in our series will dive into this in some more detail. 

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What is a Cash ISA?

A cash ISA, short for Cash Individual Savings Account, is similar to a conventional savings account. However, its distinctive feature is the exemption from taxation on the interest earned.

In each UK tax year (which runs from April to April), you can deposit up to £20,000 into a cash ISA.

ISA savings are in addition to the Personal Savings Allowance (PSA), which permits basic rate taxpayers to earn up to £1,000 in savings interest annually without incurring tax liabilities.

Higher rate taxpayers (40% tax rate) qualify for a reduced PSA of £500 per year, while additional taxpayers earning £150,001 or more do not receive any allowance.

ISA limits apply. £20k per tax year. Chip does not provide tax advice or financial advice. Tax treatment depends on individual circumstances and may be subject to change in the future.

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How do Cash ISAs Work?

If you're thinking about using a cash ISA to grow your savings, here's a brief overview of how they work:

• Cash ISAs are typically easy to open.
• You can save up to £20,000 annually, and your account accrues interest similar to a standard savings account.
• A variety of cash ISAs are available, such as easy access, regular saver, fixed rate, and junior ISAs for individuals under 18.
• Different ISAs may have varying terms, including withdrawal restrictions on fixed rate cash ISAs.
• Transferring funds from previous tax years into a higher-yield ISA account is possible. Avoid closing an ISA when switching; instead, contact your new ISA provider to facilitate the transfer.

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Interest Rates on Cash ISAs

The interest rate depends on the type of cash ISA and the chosen provider. Fixed rate cash ISAs offer a guaranteed return for a set period, whereas variable rate cash ISAs may change if the provider adjusts its interest rates.

Use our interest rates calculator to see how much you could earn. 

Cash ISA interest rates can vary between financial providers, so it’s always good to do your research with comparing Cash ISA rates.

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Cash ISA factors to think about

Before opening a cash ISA, consider the following factors:

1. Interest Rate: The interest rate determines your savings' returns. Be aware that initial high introductory rates may decrease after a year, so consider transferring your ISA funds to a higher-yielding account at that point.

2. Account Type: Choose between easy access, fixed, or regular saver ISAs based on your preferences for return and accessibility.

3. Alternative ISAs: Apart from cash ISAs, you can explore stocks and shares ISAs. These involve investing in the stock market, offering potential rewards but also bearing some level of risk.

4. Annual Limit: You can open only one cash ISA each year. Think carefully before selecting your cash ISA, keeping in mind that your total ISA savings can't exceed £20,000 in any tax year.

5. Deadline: The tax year concludes on April 5th. Any unused ISA allowance cannot be carried over, so invest before this date to maximise your tax-free benefits.

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How Many Cash ISAs Can I Have?

You can have multiple ISAs, but you can only deposit a maximum of £20,000 in a given tax year.

Be aware that transferring funds from previous years' ISAs does not count towards this limit.

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Cash ISA Rules

Cash ISA rules are straightforward:

• You can deposit a maximum of £20,000 per tax year.
• Transfers from existing cash ISAs to new cash ISAs or splitting transfers among different providers are allowed.
• To switch between cash ISA providers, you must request a transfer. If you withdraw the money yourself, you'll lose your tax-free allowance on the entire sum.
• You can transfer money from a stocks and shares ISA to a cash ISA, but this requires a form to be submitted to the new provider (but please note you can't currently do this with Chip).

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Pros and Cons of Cash ISAs

Pros of cash ISAs:

• Tax-free savings.
• No risk of capital loss compared to stocks and shares ISAs.
• Flexibility to transfer to higher-yield accounts while retaining tax advantages.

Cons of cash ISAs:

• High interest rates may drop after the first year.
• Fixed rate cash ISAs may lock your money for a set period.
• Not all accounts accept transfers from previous years, and exit fees may apply.

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Switching Cash ISAs

Switching could be considered if you find an account offering a higher interest rate. Ensure the new provider accepts transfers and inquire about any penalties for moving your funds.

You can transfer savings from both the current and previous years. It may also be possible to request a partial cash ISA transfer however not all providers can facilitate this.

Avoid closing the ISA, as this would result in losing the tax benefits. Instead, contact the new provider to arrange the transfer.

A bull market is a period when a broad market index, like the S&P 500, rises by 20% or more from its recent lows. This upward trend is fuelled by widespread investor confidence and optimism, which drives a sustained period of increasing prices.

During a bull market, investors use various strategies to try and profit from the rising values. A bull market is the direct opposite to a bear market, which is a market drop of 20% or more. 

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When are we in a bull market?

Similar to bear markets, bull markets can only be identified retrospectively, once a major index has risen 20% or more from a recent low. 

Certain economic signals and market conditions can create the environment for a bull market:

• Strong economic growth: When the economy is expanding, it's a powerful driver for the stock market. Key signs include low unemployment, rising GDP, and healthy wage growth, which all contribute to higher consumer spending.
• Rising corporate profits: A bull market is built on the success of businesses. When companies consistently report strong earnings and positive future outlooks, it boosts investor confidence and drives their stock prices higher. 
• High investor confidence: When investors feel positive about the future of the economy and corporate earnings, they are more willing to buy stocks, creating upward momentum.
• Supportive monetary policy: When central banks, like the Bank of England, keep interest rates low or stable, it makes it cheaper for companies to borrow and invest. This stimulates the economy and often makes stocks a more attractive investment compared to lower-yielding bonds or savings accounts.

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How long do bull markets last?

Although no two bull markets are the same, historical data shows bull periods far outlast bear periods on average. For example, the average duration of the seven bull markets between 1969 and 2024 was six years and nine months. In contrast, the average duration of the six bear markets in the same period, was one year and three months.¹

The contrast in this data is central to the principle that over time, markets have trended upwards, more than they have downwards. The crucial takeaway is that staying invested is important for maximising potential returns, as even if you miss the bad days, you could also be missing out on great runs too. 

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What does bullish mean?

A bullish investor expects an upward trajectory in prices (the direct opposite of being bearish). Confidence is typically based on positive signs such as:

• Strong company earnings reports.
• Positive economic news e.g. declining unemployment.
• Innovative new products or services.
• Favourable industry trends.

A bull’s primary goal is to profit from these rising prices. The most common strategy is simply buying an asset and holding it, also known as ‘going long’. This principle can be applied by any investor hoping to generate returns in the market.

More active investors might take more risk:

• Buying call options: essentially reserving the right to buy a stock at a set price, which becomes profitable if prices rise beyond the call level. 
• Growth stocks: speculating on companies in high-growth sectors, which have historically yielded greater returns than the rest of the market. 

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How to approach a bull market?

It’s important to approach bull markets with the same disciplined approach you’d apply to any investing scenario. The ultimate goal is to not miss out on the upward trend, whilst not being driven by emotion which can lead to mistakes. For example:

• Staying invested but avoiding FOMO: it can be tempting to chase ‘hot stocks’ in high-growth areas in order to pursue the biggest gains, but it’s important to balance opportunity with your risk level. Don’t jump in with more money than you’re comfortable investing, and stick to your long-term plan. 
• Review and rebalance: bull runs can cause your portfolio to drift from its set targets. Better performing assets will grow to become a larger percentage of your holdings, causing an unintentional shift in risk. Consider rebalancing to your original allocations, by moving assets from overperforming to underperforming assets to lock in some gains and stay diversified.
• Regular investing: by sticking to your usual regular investment plan, you won’t get drawn into trying to time the market. A steady approach ensures you're exposed to differing purchase prices, rather than going all in at a potential market high.

Bull markets don’t last forever. Whilst they can present solid opportunities for gains, and staying invested is important, it’s equally important to not get carried away and invest more than you’re comfortable with. Stick to your investing plan and avoid getting too caught up in the latest trend, as you may become overweight in a particular theme or market, without even realising. 

Read our full guide of economic indicators investors should consider.

What is a safeguarded benefit?

A safeguarded benefit is a promise about your pension. It might be a guaranteed income for life, or a guaranteed rate for turning your savings into an income.

Most modern pensions are simply a pot of money with no promise attached. These are called defined contribution pensions, and they’re the kind Chip is built for. Safeguarded benefits are more common in older pensions, often set up in the 1980s and 1990s.

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The main types to look out for: 

• Defined benefit (or final salary) pensions. These pay you a set income for life, based on your salary and how long you worked there. The income is guaranteed, so it doesn’t rise and fall with the stock market.
• Guaranteed annuity rate (GAR). A promise that you can swap your pot for a guaranteed income at a set rate. Older rates are often far higher than the rates available today, so this can be very valuable.
• Guaranteed (or protected) pension age. The right to take your pension earlier than the normal age, which is currently 55 and rising to 57 in April 2028. Transferring could mean losing this.
• Guaranteed minimum pension (GMP). A minimum amount your scheme must pay you. You may have this if you were “contracted out” of part of the State Pension before April 1997.
• Other guarantees. Some pensions also include guaranteed growth or bonus rates, or let you take more than the usual 25% as tax-free cash.

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Why this matters

Guarantees like these are hard to find anywhere else, and you usually can’t replace them once they’re gone. Giving one up could leave you worse off in retirement. That’s why there are extra rules in place to protect you.

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Can Chip accept a pension with safeguarded benefits?

No. Chip’s pension is built for old defined contribution pensions, which are a simple pot of money. We can’t accept a transfer that includes safeguarded benefits or guarantees, regardless of value. If your pension has a guarantee, the safest thing is usually to leave it where it is.

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If you’re thinking about moving it

If you still want to move a pension that has guarantees you should consider whether to speak to a regulated financial adviser first. They can look at your situation and tell you whether it’s the right move for you.

In some cases the law requires this. If your safeguarded benefits are worth more than £30,000, you must take regulated advice before you can transfer, and the provider you’re leaving has to check that you’ve done so.

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Before you transfer, check for:

• a guaranteed income, or a guaranteed annuity rate
• the right to take your pension before age 55
• a guaranteed minimum pension, if you were contracted out
• exit fees or penalties for leaving
• valuable extras, such as life cover or extra tax-free cash

Your current provider can tell you. You can also check your most recent statement or your scheme booklet.

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Not sure what you have?

If you’re not sure what type of pension you have, or whether it comes with any guarantees, ask your current provider. They can tell you for free.

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Where to get free help

For free, impartial guidance, you can contact MoneyHelper, which is backed by the government.

To find a regulated financial adviser, you can use the directory on MoneyHelper, or check the Financial Conduct Authority register to know whether a firm or advisor is authorised by the FCA.

If you’re 50 or over, you can also book a free pension appointment with Pension Wise.

A bear market is a period when a major market index, such as the UK's FTSE 100 or the US's S&P 500, falls by 20% or more from its recent highs. This market environment is characterised by widespread pessimism. Investor confidence is low, leading many to sell stocks, which in turn pushes prices down further. This is the direct opposite of a bull market, where prices are rising and optimism is high.‍

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When are we in a bear market?

Bear markets can only be identified retrospectively, once a market index has fallen more than 20%. It is a backwards-looking label rather than a real-time indicator. 

However, certain economic signals often precede or accompany a bear market. These can include:

• Slowing economy: Key indicators like rising unemployment, a drop in corporate profits, and reduced consumer spending often signal an economic downturn that can lead to a bear market.
• Rising interest rates: Central banks, such as the Bank of England, raise interest rates to combat inflation. This can make borrowing more expensive, cooling the economy and sometimes triggering a market downturn.
• Geopolitical events: Major global events, such as wars or energy crises, create uncertainty and can cause investors to sell off assets in a flight to safety.

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How long do bear markets last?

There are different types of bear markets, and typically recovery times differ depending on the cause. Research from Goldman Sachs¹ identifies three distinct categories of bear market based on historical stock market data:

• Structural bear markets such as the Global Financial Crisis in 2007-2008 are triggered by a market imbalance and ‘bubbles’. By far the most severe type, average declines are around 60% and recovery time is around a decade. 
• Cyclical bear markets are tied to rising and falling economic cycles, and can be triggered by economic headwinds such as rising interest rates, impending recessions, and declining profits. Average declines are around 30%, which last an average of two years, and take about five years to fully recover. 
• Event-driven bear markets are triggered by single events such as wars, oil prices shocks, or a global crisis such as the Covid pandemic. Recovery periods are shorter, typically lasting around eight months, with full recovery in around a year. 

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What does bearish mean?

If you are a bear in the market, you are a stock market pessimist, and believe that prices are going to experience a downward trajectory. This is the direct opposite of being bullish, which is a belief that prices are heading upwards. 

A bear in the stock market might react differently depending on strategy and risk appetite. Some adopt a very high-risk strategy called short-selling, essentially betting on the falling price of a stock or market index, by borrowing shares from a lender, selling them on the open market, then selling them back to the lender at the (hopefully) lower price and profiting from the difference. 

Other bears might take a more defensive position, moving to ‘safe-haven’ assets such as cash and bonds, in an attempt to preserve or even grow capital during a market downturn.

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How to approach a bear market?

There is no one-size-fits-all approach to a bear market event, but for investors with a long-term horizon, the same key principles apply.

1. Avoid panic selling: keeping calm in the event of a market downturn is crucially important if prices have already fallen, and selling will simply ‘lock in’ any losses you’re seeing in your portfolio. You risk missing the recovery period, and could derail your long-term goals. 
2. Review your goals: if your financial goals are still years away, you likely have sufficient time to wait out the downturn. Familiarising yourself with the upward trends of the stock market over time can help put things in perspective.
3. Stay diversified: spreading your investments across different asset classes and regions, can help cushion the impact of a bear market, particularly in event-driven circumstances that can be specific to an industry or market region. 
4. Regular investments: continuing to invest a fixed amount, whatever the price, can help smooth out the ups and downs of the market. In a bear market, these investments are taking advantage of lower prices and potentially increasing returns when the market recovers. 

While bear markets can be unsettling, they’re a natural feature of the economic cycle, and can even present opportunities if navigated properly. Historically, bear markets in global markets have eventually been followed by a new bull market and a period of economic recovery, so staying the course if your financial goals allow it can be the best route for investors. 

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In an ideal world, this isn’t a subject we’d need to feature on our blog. But, the reality is that thousands of people fall victim to financial crime every day.

Scams today are becoming increasingly sophisticated, and in the age of digital money management, it’s more essential than ever to be aware of how criminals act, and what can be done to remain safe online.

At Chip, we want to give you the information you need to stay steps ahead of the criminals, so you can build your wealth securely.

We’ve compiled this guide to help our community fight fraud.

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More than a wealth-building app

We’re here to help you manage your money safely

Although you can’t send money to anyone else directly from the Chip app and you can only withdraw to your own bank account, it could be the case that you end up withdrawing funds to pay someone from your bank for a fraudulent reason.

With this in mind, we want to provide educational resources and tips on recognising and avoiding common tactics used by fraudsters, ensuring you can build your wealth with confidence.

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Some tips to keep you safe

How to be sure about the legitimacy of an email or call

When we get in touch with you to tell you about products, updates or general Chip information, it’ll mainly be via email (secure@getchip.uk, or hello@getchip.uk), in-app messaging, or push notifications. We sometimes send you an SMS, but these will only ever tell you to log onto the app and will never contain any links.

Scammers routinely use email and text messages to pry for personal details or to get you to click a malicious link, and will often try to impersonate financial institutions (such as your bank, or Chip), or people in your contacts list.

Here are some of the key things to be on the lookout for:

• Suspicious email addresses: Scammers often use email addresses that mimic legitimate organisations, but may contain variations or misspellings. Always check who the sender is, that the domain matches the company website in any links (getchip.uk).

• Urgent or threatening language: If an email contains language designed to pressure you into making a decision, it’s most likely from a scammer. Fraudsters often try to create a sense of urgency.

• Requests for personal information: Chip will only ever ask for personal information for a purpose such as verifying your identity, or confirming the information we hold about you.

• ‍Requests for passwords or sensitive account information: This is a big red flag. Avoid any requests that ask you to send sensitive personal account information such as passwords, PINs, one time passwords, mother’s maiden name (etc...). Chip will never ask for this information outside of your app.

• ‍Requests for your full card details: Scammers want your full card details, including expiry dates, and your three-digit CVC number. To be clear, Chip will never ask for your debit or credit card information outside of your Chip app.

• ‍Requests for payment: Be extra wary of emails that request money or payments for goods, services, or fees. Again, Chip would never ask you to complete any transactions outside of your app.

• Poor spelling: Many scam emails contain spelling and grammar mistakes, unusual phrasing, or awkward language.

• Unsolicited attachments/links: Be very wary of emails from unknown/suspicious email addresses that contain attachments or links. They could contain malware/viruses, or link you directly to phishing websites. Check the URL to see if it’s a genuine request from Chip.

• Requests for remote access: Another common email scam asks you for remote access to your computer or mobile device, and will often claim to be from tech support or a company’s customer service team. Chip will never request remote access. We will never ask you to download an additional app or software.

If you’re unsure if an email, call, app push notification, SMS (or any form of contact) is from Chip, you should always double check with our support team using your secure in-app chat, or email us directly using hello@getchip.uk.

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Phone calls

We may, on rare occasions, contact you over the phone for urgent requests.

We will need to verify your identity using information we already hold on you, but we will never ask for sensitive account information like full card numbers, PINs, passwords.

Additionally, we won’t request immediate payment or threaten legal action over the phone.

If you’re ever unsure about whether the call is really coming from Chip, hang up and contact us via email or via our app to confirm if the call is genuine.

Common characteristics of fraudulent calls include:

• Pressure to act quickly: Fraudsters will often try to create a sense of urgency to pressure you into making decisions without thinking it through.
  
• Requests for sensitive personal information: If the caller asks for sensitive personal information, such as bank account details, passwords, PINs.
  
• Fee requests: Fraudulent callers sometimes demand upfront payment for services, taxes, or fees.
  
• Inconsistencies: One of the easiest ways to spot fraudulent activity is by recognising inconsistencies in the caller's story. If something seems off, end the call.

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Protect yourself with biometrics

Keeping your app secure

It's genuinely wise to protect your mobile devices with a password or biometric login. As an additional security layer all Chip users need to create a 6-digit PIN to access their app.

Once you’ve created your PIN, you'll have the option to set up biometric logins using your fingerprint or FaceID for seamless and secure access.

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Take Five to stop fraud

Chip supports the industry fraud awareness campaign ‘Take Five’

‍Take Five offers straightforward and impartial advice to help everyone in the UK protect themselves against financial fraud.

Its goal is to raise awareness and provide advice on how you can protect yourself from scams, emphasising the importance of taking a moment to stop and think before parting with personal information or money.

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We’re here to help

Please reach out to the team if you have any questions or concerns.

If you are ever in doubt about communications from Chip being legitimate, send an email to secure@getchip.uk and our team will confirm whether the request is genuine.

Let’s build wealth, safely and securely, together.

What is the 50/30/20 rule?

The 50/30/20 is a simple budgeting technique that helps you start managing your money, keep doing what you enjoy and start building your future wealth.

Popularised by US Senator Elizabeth Warren and economist Amelia Warren Tyagi in their 2005 book, All Your Worth: The Ultimate Lifetime Money Plan.

You split your income between paying your living expenses (50%), doing the things you like doing (30%), and working towards your financial goals (20%).

The rule gives you a clear structure to your budget for the month, with limits to help avoid overspending while building up your savings over time. Starting small with something achievable means you're much less likely to give up.

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A quick note before you start…

Think about what’s right for you

Before we begin it’s safe to say we're making the following assumptions about the financial position of the reader.

We are looking at you, if you’re comfortable enough to have disposable income that sits idle in your current account or in a basic low interest savings account with your bank every month. Understand the different types of savings accounts.

This is not financial advice - this is about simple tips to get going, while not impacting your day to day life or living a life of extreme frugality. So if this sounds like it’s for you, read on!

The following should not be taken as advice or guidance around financial hardship. If you're in this situation, there is support available from GOV.UK or Citizens Advice that can help.

Try out our savings goal calculator to see how long it'll take to achieve your savings goal!

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What could 50/30/20 look like?

Bring order to the chaos

1. Essentials - This is stuff you need - Your costs of living. This is your rent or mortgage, the bills you pay from utilities like energy to your mobile phone, internet. This includes food essentials, transport to work and insurance policies. You can also add debt here depending on how you see it or you may choose to see it as a financial goal - It’s up to you. In general it's considered wise to pay off short term debt first if it costs you interest.
2. ‍Desires - This is stuff you want and like doing. Activities like going to restaurants, cinema, shopping, holidays and trips, your gym membership and the subscription services you use like Netflix. We also mean non-essential food like takeout coffee.
3. ‍Future  - This is savings and/or investments that are put towards your goals. How you do it is up to you to save up for a house deposit or pay off long term debt repayment or even setting up an emergency fund. This is where Chip comes in, but more on that later.

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How to apply the rule

Working out your monthly spend 

First you need to know how much you’re spending on each area and your monthly income*. This will require a little work but all you need is a bank statement and a calculator.

Apps like Revolut and Monzo make this very simple as your spending is automatically put into categories like restaurants, shopping, groceries etc so you can work out the amounts of Essentials, Desires and Goals with ease.

Once you have all your spending laid out apply the following simple maths 

Divide the amount you’re spending on Essentials, desires and goals per month by your monthly income.

For example: If your Essentials are £1,100 and your wages are £2,200 do the following

£1,110 ÷ £2,200 = 0.5 then multiply that number by 100. For example: 0.5 × 100 = 50%.

*If your income isn’t regular take your average income from the last three months

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What else is great about 50/30/20?

It’s completely flexible

The 50/30/20 rule works because it’s simple. It’s also flexible and you can change the numbers to suit your situation. For example high rent in a city might mean you have to split it 55/25/20.

These serve as limits and targets and can guide you to make changes.

If your essentials cost more than 50% could you make a change like switching broadband provider? If your desires cost more than 30%, could you cut down the amount times you buy lunch out? 

Putting 20% towards your financial goals is a good target but it can’t hurt to aim for more, if your living costs allow a 40/30/30 split, increase the amount you put towards your goals.

While 50/30/20 isn't a silver bullet, it does provide an easy-to-follow rule to get you started. The rest is up to you. Learn more about money saving tips.

Savings challenges have taken off because they make the often daunting task of saving money simple, engaging, and motivating.

By "gamifying" the process, they help people build consistent money habits with a clear structure that’s easy to follow.

The key is choosing a savings challenge that fits your lifestyle, so here’s a look at some of the most popular ones, so you can work out which one might suit you best.

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The £1 a day challenge:

What is it?: Save £1 every day for a year and you’ll end up with £365.‍

Why it works: This is one of the simplest challenges out there, and that’s exactly why it works. The amount is small, predictable and easy to commit to. Making it ideal if you’re new to saving or just want to rebuild the habit.‍

Best for: People starting from scratch, or anyone who wants to take things slow and steady, this challenge can ease you in.

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The 1p challenge:

What is it?: Start by saving 1p on day one, then increase by 1p each day. By the end of the year, you’ll have saved £667.95.‍

Why it works: This challenge eases you in gently, with very small amounts at the start and larger ones towards the end of the year. It’s satisfying to watch it grow in value

‍Best for: Those who like visible progress and don’t mind gradually increasing contributions daily over time.

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The monthly incremental challenge:‍

‍What is it?: Start with £10 in January, £20 in February, £30 in March... This increases each month until December. By the end of the year, you’ll have saved £780.‍

Why it works: This challenge lines up neatly with monthly pay cycles and feels manageable even as amounts grow. It’s also easier to plan around than daily saving.‍

Best for: Monthly savers who want predictability without the effort of adding money daily.

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The 52-week challenge:

What is it?: Save £1 in week one, £2 in week two, all the way up to £52 in week 52 (a total of £1,378).‍

Why it works: This is a popular one for a reason. It gives you a clear weekly target and works well if you’re paid monthly or weekly. You can also flip it and start with the bigger amounts first – whatever works for you‍

Best for: Anyone who likes structure and wants a more meaningful savings pot by the end of the year.

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The fiver challenge:

What is it?: Save £5 in week one, £10 in week two, £15 in week three. All the way to £260 in week 52. Giving you a total of £7,000.‍

Why it works: This one isn’t for the faint-hearted, and can really supercharge your savings. Contributions ramp up quickly, so you’ll need planning and discipline to stay on track but it can be very powerful if you’re saving for something big.‍

Best for: Higher earners or experienced savers working towards a large, time-bound goal.

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The no-spend challenge:

‍What is it?: Pick a week, fortnight or a month where you only spend on essentials, and move everything else you would’ve spent into a savings account‍

Why it works: This is a bit different as it isn't about saving fixed amounts, it’s more about awareness of your spending. It can be hard to stick to, but for many people this can be eye-opening, and the chance for a bit of a reset.    ‍

Best for: Anyone who likes to challenge their willpower, reset and quickly boost savings with no tech or maths required.

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So… which one should you choose?

The best savings challenge is the one you’ll actually stick to.

If you’re building confidence, start small. If you’re saving for something specific, choose a challenge that lines up with your goal. And, if you’ve fortunate to have more disposable income, push yourself to save those bigger amounts.

Remember, you don’t have to follow these rules perfectly. Tweaking amounts, skipping weeks, or restarting is still progress. Saving isn’t about being perfect. ‍

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How Chip can help

Savings challenges work best when they’re automated and that’s exactly where we come in.

‍With our smart recurring deposits, Chip can regularly move money into a savings account for you automatically, so you don’t have to remember every contribution yourself.‍

With our Goals feature, you can set clear targets and track your progress in the app, whether you’re aiming for £365, £7,000 or beyond.

Whatever challenge you choose, Chip helps turn good intentions into real results - and earn interest while you do it.

Learn more about our savings accounts.