Why saving is the new spending
The usual sign of financial confidence is increased spending – but a new report suggests we’re becoming a bit more savvy. For a growing number of Brits, having cash to spare means topping up their savings rather than hitting the shops. Are you one of the new ‘savethrifts’?
Hands up if the economy confuses you? Hopefully we’ve all become a bit wiser since the big crunch of 2008, but plenty of head-scratchers remain. Like, why do they measure the nation’s wealth not by what we save, but by how much we’re spending? Shouldn’t spending less make you richer?
Well, maybe we’ve learned some hard lessons. According to the latest Lloyds Bank Savings Report, saving is once again on the rise in the UK, up by 2 per cent since the previous quarter. One in ten people said they’d been able to save more than £1,000 in the past month, while one in five had managed £500. Similarly, one in five had built up more than four times their monthly income in savings (the recommended emergency fund is three months’ income).
So although we might be enjoying the economic recovery, the memories of the financial crisis are still sore. Having been badly burned the nation is being more careful this time, remembering rainy days of the past and saving for the next one, instead of splurging. It could be that we just don’t trust governments any more to run the economy for us, so we’ll run our own and make contingency plans ourselves. The country might swing from good times to austerity, but we don’t have to.
Making hay while the sun shines
If you want to take advantage of the current climate to put a bit more money by, here are your top options:
- Regular savings accounts
If you’re confident you won’t need immediate access to the money, a regular savings account is one of the best places to skim off that extra monthly income. Some very high interest rates are available, although many have restrictions on deposits and withdrawals. They also run for a limited time, such as one or two years – but you can always switch to a new one.
- Cash ISA
Do shop around for the best one you can find – interest rates vary enormously. The big advantage of cash ISAs at the moment is that the interest on them isn’t taxed.
- Stocks & shares ISA
If you have some unused ISA allowance (the limit is £15,240 for the 2015-2016 tax year) and want to invest in equities, then you should hold them in a stocks & shares ISA so the growth is tax free. But remember, their value can go down as well as up. Interestingly, men are more than twice as likely as women to choose these higher risk, higher growth products, according to the Lloyds report.
- NS&I products
National Savings & Investments products include everything from savings accounts to premium bonds. Although they do not tend to offer the best growth rates they are among the most secure, as HM Treasury gives a 100 per cent guarantee on all deposits.
Bonus hint: if you go for a non-ISA account, choose one that pays annual rather than monthly interest. From April 2016 the first £1,000 of interest is tax free for most savers, so if your interest is deferred until then you could save quite a bit.
To explore the best ways to save for your long and short-term goals, talk to a financial adviser. If you already have savings and investments, then why not book a free investments check to see if you can spruce them up?