A lack of commuting, buying lunch at work and at times nowhere to go, saw many people saving huge amounts of cash in the last 12 months, unintentionally or otherwise. As a nation we saved a staggering £238bn last year alone. The ONS said that the Savings Ratio, which is the amount of money that households save out of surplus income, soared to a record 16.3% last year, up from just 6.8% in 2019. In the second quarter of 2020, the ratio reached an incredible 29.1%.
But, as we head towards a new normal and the world begins to open once more, giving us more opportunity to spend our cash, it would be a great shame to either blow all the money saved over the last year and/or get out of the savings habit going forward.
Of course, there may be less disposable income to save once things go back to normal, depending on what your new normal will look like, but hopefully not all the money put aside over the last year will be spent – even if this is exactly what the Chancellor and his cohorts are counting on, to spend our way out of the mess the economy is in.
Save some, spend some?
One thing to consider when trying to maintain the savings habit , is to set up a standing order into a savings account of your choice, cash or investments. And if you arrange for the standing order to take money from your account just after you are paid, it can become another bill that is automatically deducted – but one you will benefit from in the future - rather than an afterthought IF you have anything left at the end of the month. There are also a number of auto-saving apps that use technology to either round up your spending or work out how much you can afford to save, then automatically move money from your bank into a separate savings account.
If you might need to access the money is the short term, then you will need to keep the money in cash – but DON’T simply leave it in your current account, as it is all too easy to dip into it and lose track of what you’ve achieved through saving a little each month. Even a savings accounts with your high street bank is not a good place to leave your money, as the big banks pay some of the worst rates on the market. And although interest rates are very poor at the moment, it pays to shop around and find the best rates you can.
If you have a lump sum, choosing the best rate, can add extra pounds to your pocket. For example, if you have £50,000 then your bank might pay you 0.01%, which equates to £5 a year in interest. The best easy access account is paying 0.50% - so £250 a year instead.
If you are simply disincentivised by cash savings rates and therefore are considering investing, our colleague Alex Shields from The Private Office offers some considerations, especially for less experienced investors.
He says “As cash savings rates are so low at the moment and with an uncertain outlook for inflation over the coming months, you could consider investing some cash if you don’t think you’ll need access to the money in the short term. For those who have built up a significant amount of cash savings during lockdown, while some of this will likely be earmarked for spending when lockdown ends, an appropriate amount could be considered for investment, but only if you are comfortable with some bumps along the way.
Investing into anything other than cash should normally be considered for at least the medium term, so this could also encourage you not to spend the money unnecessarily, but to instead invest for a financially healthier future. However, make sure you invest the money sensibly into a diversified and tax efficient portfolio, in line with your attitude to investment risk.
How comfortable you are with the inevitable ups and downs and how long you can invest the money for will be key in establishing how much risk you should take with your savings and investments.”
If the tough year we have endured can at least have turned us back into a nation of savers and away from borrowing, that’s no bad thing. It’s a matter of getting the balance right between spending and saving.
If you’re thinking about investing or simply looking for expert advice on the best place for you cash, The Private Office or currently offering anyone with £100,000 or more in savings, investments or pensions a FREE review worth £500, to map out your own personal financial plan and see how you can make the most of your wealth.