Savings may take another hit in the coming weeks as the likelihood of a second lockdown increases, just as the economy started to reopen. Fortunately, there are steps that can be taken to prepare for small, medium and large ambitions and outcomes.
Abigail Yearly, a spokesperson for TopCashback, commented on the dire state of affairs savers currently face. “As feelings of financial uncertainty are more prevalent than ever, it’s important to manage your money and simplify your savings, to avoid overwhelming yourself,” she said.
“Dividing your savings into small, medium and large goals can help you to do this.
“Regardless if you are just starting off, or an experienced saver, this method is applicable to everyone.
“With specific and realistic targets in mind, you will become far more motivated and confident in your saving.”
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As the analysis from TopCashback detailed: “Humans thrive on certainty and boundaries, it’s just how we’re built, so sometimes saving for the hypothetical, or not having a target goal, can feel deflating or like you’re not getting anywhere (resorting to impulse spending).
“It can help to divide your saving goals into small (short-term), medium (mid-term) and large (long-term) goals.
“A small saving goal should be a short-term goal like a new boiler or a holiday. Medium savings focus at the next five to 10 years, and are bigger but not unmanageable purchases, like a new house or wedding (which comes with a handy deadline too).
“Larger savings will equate to things that are longer term and later in life, like your pension. Setting aside different amounts for each thing, each month, will help you satisfy short term spending urges, and help chip away at large projects, removing any guilt for those smaller purchases. Think £10, £20, £50 per month on each thing.”
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On top of this guidance, additional tips were provided on tangible steps that could be taken:
- Start with your salary: Monzo’s new feature – The Salary Sorter will help you to divide money between spending bills and savings, all on payday. This way, you can set clear targets from the get-go and make sure you don’t overspend.
- Set up digital piggy banks: Monzo’s Pots will allow you to set up numerous virtual piggy banks with specific goals and you can earn interest on pots by setting up a Savings Pot.
- Round up your savings: Whilst carrying around spare change is a thing of the past, the Moneybox app has a great feature where you can start saving with your spare change, but digitally. The app automatically rounds up everyday purchases like your morning coffee or yesterday’s parking ticket and adds this to your savings.
- Store away cash in an ISA: Grow your savings with an ISA, especially if you have a lump sum of cash to put away. The accessibility of ISAs varies, so make sure to choose the right one: cash ISAs will allow you to access your money at any time, whilst Lifetime ISAs are far less accessible and you will be deducted for extracting money before your 60
Recent analysis by Moneyfacts.co.uk has found that since September 2019, average savings rates for easy access accounts and easy access ISAs have fallen by around two thirds.
On top of this, the number of live savings products has increased over September but year-on-year figures show that the market has contracted by 23 percent, leaving savers with reduced options.
Rachel Springall, a Finance Expert at Moneyfacts.co.uk, warned that the situation could get worse in the coming weeks.
She said: “ISA rates and choice of deals has had a notable improvement this month, but the differential in rates between fixed deals outside of an ISA wrapper could deter some savers.
Regardless of this, it is vital savers consider utilising their ISA allowance as its tax-free benefits last for years to come, whereas the Personal Savings Allowance, where most UK taxpayers are able to earn up to £1,000 of income from savings tax-free, could be pulled with little notice.
“The number of savings options for consumers is starting to rise, but with the market contracting by 23 percent since September 2019, savers may understandably be left dejected by such a substantial fall in the choice of deals available to them. As it stands, it is the more unfamiliar brands launching an array of products to tempt savers and it is hoped this will persist in the months to come.
“In light of the uplift in rates and choice this month, savers will need to keep a close eye on the changing market and providers will need to act quickly to cope with excess demand. If providers do indeed hit their desired subscription limits, then they may cut rates or pull deals entirely to manage their exposure in the savings market.”