Money is tight for most of us and it can be a real struggle to manage household budgets and keep clear of debt.
That’s why there’s been growing interest in so-called jam jar accounts. These almost always charge a fee but do much more than a standard or basic bank account.
Jam jar accounts manage your money for you. You specify what kind of ‘pots’ you need your account to contain and the account will automatically divide your cash up.
So, you might label one pot ‘bills’, another ‘savings’ and a third ‘spending’. Then the account only allows you to spend the money in your spending pot, giving you the reassurance that when your bills are due the money is there.
Quite a few banks provide this kind of paid-for account. For example, thinkmoney charges £14.50 a month and Secure Trust Bank says demand is so great that it’s going to relaunch its own budgeting account soon.
Why would I pay for a bank account?
If you have no problem managing your money and paying your bills on time then a paid-for jam jar banking account probably isn’t for you.
But if you never have enough money for your bills by the end of the month and you’re really struggling to budget effectively, then it might be worth the money.
Social Finance, an organisation that tries to use market principles to achieve social good, has pointed out that free banking isn’t free for anyone who can’t stay in credit.
“The current ‘free if in credit’ banking model in the UK, does not meet the needs of consumers on low incomes or with poor financial management skills who struggle to avoid penalty fees and unauthorised overdraft charges,” it warned.
Why a ‘jam jar account’?
Jam jar accounts are so-called because of the old budgeting trick of setting up different pots of cash for different bills.
I wanted to know how easy it was to impose a jam jar banking system on my finances without paying for an account. So I washed up some jars, worked out my budget and gave it a go.
Taking jam jar banking literally
Our household bills are paid straight out of our bank account, but we have a lot of different household costs that we pay on a week by week basis and I decided to trial this on these.
Groceries, childcare, toddler entertainment, fuel. Those are our main expenses week on week and the cost of each tends to vary.
So, I broke my budget down even further and worked out the maximum I could afford to spend on each, placing the money into four designated jars.
Why would you do that?
The plan was that this kind of micro-budgeting would allow me to keep much greater control over my money.
Anything left in the jars at the end of the week was to be swept into my emergency fund, instead of being absorbed into other areas of spending.
That way, if my petrol pot was out of money then I wouldn’t dip into my grocery pot to top up my tank, only to then need to use my credit card to pay for my groceries.
It’s a basic but sensible idea for keeping out of debt by micro-managing your budget.
Did it help?
Yes and no. On the one hand, being so very aware of how much I was spending in any one area meant I spent slightly less in each.
Because I knew exactly how much I had to spend on more frivolous stuff like fuel and taking my toddler swimming, I didn’t find myself short on money for essentials by the end of the week. So I can see that it’s good for keeping out of debt.
I can also see how it would be particularly helpful for households with a weekly income. If you’re trying to meet monthly bills on a weekly salary, then popping money into a jar each week could make it easier to meet the bigger bills come the end of the month.
On the other hand, not being able to use a debit card to shop made life much harder. It’s also not a great idea to keep your entire weekly budget in the house, especially if you want to pay some bills using direct debits.
That’s why I can see that a jam-jar bank account could definitely help some people. Paying for a current account might seem like a waste of cash when money is tight, but there are clear benefits for anyone needing to budget to the last penny.
Look at it this way, if a jam jar account saves you just one late payment charge or overdraft penalty a month then it will have paid for itself.
Would you consider a jam jar account? How do you manage your budget effectively? Share your thoughts and tips with other readers in the comments below.