Lockdown has had some surprising effects. Some people have seen their income cut and are facing financial hardship. Others, however, have found that with no opportunities for holidays, evenings out or shopping expeditions they have cash mounting up in their banks, and no way to spend it.
The pandemic has led to a spike in savings, particularly among those between the ages of 35 and 44, as British workers have each set aside an average of £2,674 in cash – becoming accidental savers in the process.
At Continuum we are looking at how you can make that cash work for you.
Do what is in your best interest…
Getting cash working for you used to be easy. Your bank would be delighted to help. You could instruct them to transfer any surplus in your current account to savings and earn up to 5% on your money. You could earn even more on a short-term money market account.
But those days are gone, and probably not coming back. In the current climate, interest rates are so low, most savings accounts struggle to keep up with inflation, making returns on cash effectively 0% or even negative in real terms.
Savers probably plan to spend some of their new nest eggs when lockdown restrictions are fully lifted. This will pump billions into the economy, which will provide a big boost to the recovery by stimulating the economy. But some accidental savers will have found they like having a cash reserve, particularly when the future is still uncertain.
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Instant or easy-access accounts might be suitable for rainy day funds but don’t offer much growth above inflation (if any). There are special introductory offers that look tempting from time to time, but you may find that no savings accounts offer the kind of returns you want in the long term.
Fortunately, there is an alternative.
Becoming an investor
Savings are easy to arrange, but rather unrewarding when you do. Investments may sound daunting, but in fact they can be as easy to arrange as savings, and very nearly as flexible. More important, they can be potentially much more rewarding.
ISAs let you save up to £20,000 (as per current tax year ISA allowance) annually. Any gains you make from the interest you’re paid are tax-free.
But you will need to make sure you have the right ISA.
Cash ISAs have become unfashionable. They suffer from similar low interest rates as savings accounts, and the introduction of the savings allowance mean that their tax-free status is no real advantage.
However, a Stocks and Shares ISA could be a simple way to start investing. With a Stocks and Shares ISA, your surplus cash is invested on your behalf by an expert investment manager, making your introduction to the stock market easy. However, understanding your attitude to risk is crucial. Whether that is cautious or adventurous, our expert team of Independent Financial Advisers can help understand your overall financial position and circumstances and create a solution bespoke to you.
You can even pay into an ISA on a monthly basis, just like a savings account, and withdraw your money at short notice if you need to.
To get started with ISA investment book a video consultation with a Continuum adviser.
There are lot of Stocks and Shares ISAs to choose from and finding the one that is right for your money – whether or not it is in the form of accidental savings – it makes sense to get some expert help.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
Equity investments do not afford the same capital security as deposit accounts.