How much money will I save by quitting smoking?

CigarettesWe are a couple of days into 2013, and by now those of you who have decided to give up smoking may be wavering a little.

To help ward off the allure of the cigarette a bit longer, let's take a look at how much money you can save by quitting smoking.
The cost of your habit
I'm going to use the example of my father-in-law, who has been a smoker for decades and usually has a go at packing up the cigarettes each year.

He smokes Lambert & Butler, a range I am assured is fairly middle-of-the-road price-wise, and sets him back £6.73 for a packet of 20. On an average day he smokes 30 cigarettes. That means he is spending more than £47 a week just on fags.

The NHS Smokefree website has a calculator which you can use to see how much smoking is costing you. It also has all sorts of advice and information, including free Quit Kits and smartphone apps to help you kick the habit.

So simply packing up smoking would save my father-in-law in the region of £2,444 a year. Not a sum to be sniffed at.

But he could turn that extra cash into an even bigger sum.

Instant access savings
An obvious choice is to stick the money in an instant access savings account. That way he can earn a little interest, and still have the money within arm's reach if he needs to spend it.

Unfortunately, the rates of interest on easy access accounts these days are absolutely appalling, and they only seem to be getting worse thanks to the Government's Funding for Lending scheme.

Currently, the top account my father-in-law could open (minimum deposit of just £1) comes from National Counties Building Society, paying a rate of just 2.25% before tax.

After a year (assuming the rate stays the same, which is far from guaranteed) he'd be left with a balance of £2,472, leaving him nearly £30 better off. Not great.

Read The best instant access savings accounts for more on the current top rates.

Tax-free savings
What about an ISA? These accounts offer a tax-free return, and some offer instant access too. What's more, the money he'd save from giving up smoking is not bigger than the current ISA limits (£5,640 in cash, £11,280 overall).

He could open the Marks & Spencer Advantage Cash ISA, which pays 2.75%. Putting in £204 a month, at the end of the year he'd be sat on £2,485, an improvement of a little over £10 on the instant access account and more than £40 better off if he just kept the cash in his wallet.

But I still think he could do better.

Read The UK's best Cash ISAs for more on the latest Cash ISA rates.

A regular saver
A regular saver account does what it says on the tin – it rewards those savers who make regular contributions to their savings account, in the form of a whopping great interest rate.

Let's take the market leader, the First Direct Regular Saver Account, which pays an almighty 8% interest. You have to save each month, but you can save anything between £25 and £300 each month, up to a maximum of £3,600 across the 12-month term.

The downside is that he won't be able to access that cash until the end of the year. He'd also need to have a First Direct 1st Account as his bank account, but given that account consistently tops customer service polls, I'm not sure that's the worst thing in the world. He'd even pocket £100 just for taking out the 1st Account!

If my father-in-law put the £204 a month he'd be saving into this account, as a basic rate taxpayer, at the end of the year he'd have a balance of £2,532.06, meaning an extra £88.

Read The best regular savings accounts for more on these types of accounts.

Saving by spending
A savings account isn't his only option though. Perhaps he has outstanding debt on a credit card, and paying this extra money towards his bill will help him clear that debt earlier, meaning he'll be paying less in interest.

Or perhaps he could overpay on his mortgage. Many mortgages allow overpayments of up to 10% of the balance each year, and doing so means that you'll slash the amount of interest you pay and pay the mortgage off earlier!

Or maybe he fancies a bit of a punt by investing that cash. He could stick it in an ISA that tracks the FTSE, for example, or head over to a site like FundingCircle or Seedrs and put his money behind a small business. If all goes to plan he'll pocket a decent return on his money, and help the economy to boot.

The point is that with an extra £2,444 a year in his pocket, there are all sorts of exciting options available to him. Hell, he can blow it all on a holiday if he wants. But the only way to do so is to give up smoking, and stick to it.

If you are giving up smoking, we wish you the best of luck.
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