What to do with lockdown savings
Our experts explore the opportunities for accidental savers to make their money grow further.
Millions of people have found that successive lockdowns have reduced their spending dramatically, resulting in a big boost to the amount of cash they have on standby. This could make a big different to individual financial resilience – it’s a once in a lifetime chance to start a virtuous circle with your money, clearing debts, building cash safety nets and protecting your future.
In a low interest rate environment, the value of cash held in savings accounts could be eroded by inflation, so it is important to get the very best interest rates you can. It also makes sense to consider how a portion of these new accidental savings could be better put to work for the long term through investing in an ISA or pension.
Once you’ve got an instant access cash buffer in place for emergencies, like job loss, and some savings set aside for things you want to spend on in the short term, you can then consider your longer term needs and whether investments might be a better home for some of these accidental savings.
Top tips for accidental savings
- Pay off any interest-bearing debts with spare cash first (excluding your mortgage and student loan)
- Keep an amount equal to three to six months of salary in an instant access account to cover emergencies: this is your buffer
- Once you’ve paid off debts and got your buffer in place, set some money aside for any short-term spends that are imminent, such as a holiday booking
- Stick to your spending budget to ensure you don’t need to dip into your new savings buffer unnecessarily
- Start investing, or invest a bit more than you usually do, for the long term. This can be in your pension (instant uplift from tax relief) or ISA (no tax relief on contributions but tax-free growth)
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Investment ideas
There are several good reasons for holding cash; if you can’t find quality investments at sensible prices, as an opportunity to buy back in when markets fall or as a haven when you’re feeling nervous. However, alternative low-risk and liquid investment types are available through the ii platform.
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