Savings rates are low, but picking the best deal is still important to maximise returns.
Savers squirrelled away £100 billion during Covid-19 lockdowns, according to a Bank of England economist – but many could be losing out from below par deals.
The Bank’s chief economist Andy Haldane said that even between April and June in the first lockdown, savers put away at least double the amount of any other three months on record, as much as £100 billion.
In those three months, the Office for National Statistics’ savings ratio rose to 29%, compared to just 6.8% for the same time last year – smashing the previous record of 14.4% set some 27 years ago.
Data from the Financial Conduct Authority last week showed that nearly two-fifths of adults with more than £10,000 invested hold all their savings in cash. Another 18% hold more than three-quarters of their savings in cash.
Paul Matthews, CEO of EQ Boardroom, which holds information on shareholders, said: “The FCA figures are clear evidence that too many people are leaving substantial assets in cash accounts where they are losing value. More can be done to encourage people to take their first steps into investing to make their money work harder.”
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A savings shock to consumers has been under way throughout 2020, with near-constant rate cuts. For those keen to keep money in cash accounts, the current best easy access accounts are from UBL and Aldermore, which both pay 0.6%.
The best one-year fixed-rate bond is from Habib Bank, paying 0.75%. The best five-year rate is from Raisin offering 1.65%. Charter Savings Bank has the best one-year fixed-rate cash ISA, paying 0.61%.
Savers could also consider National Savings & Investments Premium Bonds, which pay ‘interest’ of 1%. However, this is not guaranteed as the bonds are a lottery, and savers could win nothing.
Haldane, speaking to the Daily Mail, admitted savings have not been “evenly balanced” across society.
While those in white-collar jobs have been able to continue working from home and seen commuting and other costs fall during coronavirus, tens of thousands of others have lost their jobs and taken big hits to their income.
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According to the Institute for Fiscal Studies, middle-class families had, on average, an extra £350 a month sitting in their bank accounts between March and September. The poorest households were typically £170 a month worse off.
Haldane said: “Nonetheless, it did mean there is a pool of excess savings – excess because they weren’t planned. As people's incomes held up and spending was restrained, they have amassed around £100 billion of excess savings.”
Haldane is hoping savers become spenders in the coming months and use some of this money to help restart Britain’s flagging coronavirus-hit economy and drag the country out of recession.
Much of the money is currently sitting in savings or bank accounts, he said. Some ‘rainy day’ savings are sensible, especially in times of economic uncertainty. But with rates at record lows, it is important for savers to shop around for the best deals.
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