It might not be surprising that shutting up all the apps and sending would-be holidaymakers refunds instead of plane tickets has led to a surge in the amount of money being saved by average households across the UK. Figures shared by the BBC show that people have been saving an average of 8.6% of their disposable income – the highest it has been for four years, and up more than 3% on last year.
This won’t hold true for everyone. Many people have suffered a reduced income over the last few months, which will make saving a lot harder. However, it does paint a positive picture for a large number of families – and if people are feeling cash-rich, it may help businesses to bounce back from the effects of Coronavirus as they start to re-open their doors.
A bad time to save?
Unfortunately, all of this saving activity hasn’t been met by strong returns, as banks have been slashing interest rates. Take Monzo for example: they used to offer savings accounts with interest rates at 1.25%, which has now been cut to as little as 0.25%, going up to 0.6% at maximum.
On the other end of the scale, Goldman Sachs have been turning away new savers altogether. Its easy access savings account held an interest rate of over 1%, meaning that savers flocked to open new accounts with the bank.
However, there are regulations on how much money can be accepted by the bank, and Goldman Sachs had to close the door to new accounts to avoid going over that limit. This cuts savers off from one of the few high interest accounts out there.
The luckiest savers will be those who were already locked into a fixed interest rate. If you do have a fixed interest savings fund and the rate is above 1% then it’s a good idea to try and make the most of it by saving what you can. And even if you haven’t been that lucky with your account, we still wouldn’t say that it’s a bad time to save. Saving money to cover emergencies and unexpected bills is always important, so even if your emergency fund isn’t growing, it’s important to set the money aside.
Switch account now
While all banks are facing the same financial crunch, they haven’t all reacted in exactly the same way – interest rates still vary and there are still some good rates out there if you look for them. The worst thing you can do is to simply stick with your old account out of convenience. If it’s not working for you anymore, then it’s time to switch. The best deals will be those at 1% and higher – they are out there.
Alternatively, you could consider investing your money, perhaps in a stocks and shares ISA. Over many years, investment funds typically outstrip savings by quite some margin. However, there is also the risk of losing money, so proceed with caution. This route should really only be considered if you’re willing to put the money away for 5-10 years minimum if you want to protect yourself against losing cash.