Saving up for a rainy day is now a minority pursuit. According to the Office for National Statistics, the amount of disposable income people in the UK are saving has fallen to a record low.
There are lots of external reasons for not saving – higher tax payments, spiralling housing costs, weak real wages and the struggle to pay down consumer debt, to name three. After all that, if you still find yourself with a few pounds to put aside, just putting it in a convenient savings account may not be enough. Since 2007, money deposited in easy access savings accounts generated interest rates lower than inflation for three quarters of the time, as Moneyfacts data recently found.
With a good chance that inflation will go up rather than down in the medium term, what can a wannabe saver do?
Well, you could just shop around for a better easy access account. Now that it’s easier than ever to change bank accounts, you can go hunting for the best rates. Even when average rates are low, you may be able to find a better deal, even if it’s only a higher introductory rate or a cash incentive to switch. If you don’t need your access to be that easy some standard savings accounts will offer a more favourable interest rate to customers who make fewer transactions. If you can afford to invest a specific minimum amount, some easy access accounts will offer a higher interest rate, too.
Another way to keep access to your nest egg with no notice or penalty would be to put it into premium bonds. But with no guaranteed income and an “average” prize rate which went down from 1.25% to 1.15% in May 2017, this probably won’t help you beat inflation, unless you happen strike lucky with one of those elusive big prizes.
Alternatively, a Stocks and Shares ISA could potentially out-perform inflation, attracting no capital gains tax, or tax on UK income, and you may be able to dip into it at any time. But it could also put your capital at risk, so you might end up getting less out than you put in.
Right now, it can take time and effort just to do better than breaking even, but it can be done. It does get easier if you’re able to tie some of your money up for a while, so it always pays to do a bit of personal financial planning. How much of the money you’ve put aside needs to be on tap for emergencies? Can you afford to lock a bit extra away and grow it to meet your longer term goals?
Whether you need some help to make the most of your personal finances, or you already have a plan and are looking for the best product to make the most of your money, why not get in touch with one of our friendly finance professionals today? Together, we can beat the savings drought.
The information in this article is for general information purposes only and does not constitute financial advice. You must not rely on the information in this article as an alternative to financial advice from an appropriately qualified professional. If you have any specific questions about any matter you should consult an appropriately qualified professional.