Savings are on the rise: so where can you put your money?

Looking to save but don’t know where to start? Here’s the springboard you need to get you going

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Do you know where to put your savings? Household saving deposits are on the up (£6.5bn in May 2019 according to the Bank of England), but people are apparently squirrelling their hard-earned cash away in non-interest-bearing accounts.

The Bank of England base rate remains relatively low, at 0.75%, meaning savers aren’t getting much for their money in savings accounts. And then inflation, which in May 2019 was 1.9%, reduces how much you can buy with that money. Maybe households don’t see the value in committing to a savings account, hence the influx of deposits into non-interest-bearing accounts.

The trend towards saving over borrowing is relatively new, with previous reports focusing more on household debt than whether people were putting money aside. So is the tide turning? And what has made Brits change their saving behaviour?

Let’s take a look at why savings are on the up and why you may want to follow suit.

Why are people saving more?

The latest Bank of England statistics show that household deposits recorded their largest increase since September 2016, nearly three years ago. So why are people saving more now?

One factor could be the continuing economic uncertainty in the UK. The extension of the Brexit deadline and the Conservative party leadership race have contributed to a general feeling of economic unrest. In the same way that some Brits are stockpiling food ahead of the UK’s exit from the EU, it is likely that households are also putting some money aside ahead of the 31 October deadline.

Should I be saving?

If you aren’t already saving, are you missing a trick? Probably. It is financially responsible to have some sort of savings stashed away – an emergency fund, if you like. 

The popular 50/20/30 rule suggests that 50% of your post-tax income goes on fixed costs, 20% on savings and 30% on ‘wants’. 

As a basic rule, it’s best to have enough money saved in an instant access account to cover three months’ essential outgoings. Having a savings pot means that you can cover sudden unexpected expenses without reaching for the credit card and risking incurring high interest charges. It also means that if you lose your job or have a drop in income, you can cover the shortfall in the short term.

Why should I use a savings account?

You may well have money set aside, but just in a current account that offers you nothing in return. Interest rates may be low, but you can still earn some sort of return on your money if you choose to put it in a savings account.

One of the main benefits of a savings account is compounded interest. Over the long term you can earn interest on the interest you have already earned, pushing your returns higher. A savings account makes your money work for you rather than just sit there in a regular bank account.

For example, say you had an instant access savings account with a rate of 1.75%. If you had a lump sum of £1,000 in that account and were not to add to it for a year, you would still earn £17.64 on your balance. And obviously as your balance grows, so will your returns.

Are there other options?

As I mentioned previously, the key issue facing savers at the moment is that interest gains are being outpaced by inflation. So is that a reason not to commit to a traditional savings account?

If you have enough for an emergency fund in an instant access account, then it may be worthwhile looking at fixed or notice accounts, which will often offer higher rates but will lock your money away for a certain period of time.

If you are searching for bigger returns on your money, you could consider investment products. It is important to note though that these are not without risk. Often one of the easiest ways to invest in shares is through a Stocks and Shares ISA, which may prove to be a more sound long-term investment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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