At a glance

  • A fall in spending levels during the pandemic has left many households with ‘forced savings’
  • While it might be tempting to let savings rest in a normal bank account, there are several options for making your money work harder for you
  • From overpaying your mortgage and building a rainy-day fund to setting up your financial future, some extra savings can go a long way

At a glance

  • A fall in spending levels during the pandemic has left many households with ‘forced savings’
  • While it might be tempting to let savings rest in a normal bank account, there are several options for making your money work harder for you
  • From overpaying your mortgage and building a rainy-day fund to setting up your financial future, some extra savings can go a long way

At a glance

  • A fall in spending levels during the pandemic has left many households with ‘forced savings’
  • While it might be tempting to let savings rest in a normal bank account, there are several options for making your money work harder for you
  • From overpaying your mortgage and building a rainy-day fund to setting up your financial future, some extra savings can go a long way

Our lives have changed in ways we couldn’t have imagined at the start of 2020. Social distancing, wearing masks and sanitising our hands have become part of daily life, while restrictions on movement have forced many of us to press pause on so much that we took for granted.

We’ve had to adapt to different financial circumstances too, in a variety of ways. The effects of redundancy and reduced incomes are well established, with an increase in the number of households struggling to cover their essential outgoings1.

But there is also growing evidence that financial experiences and behaviours have changed in other ways. Spending levels fell by around a quarter during the initial lockdown, according to the Institute for Fiscal Studies2, creating what it referred to as ‘forced saving’. That’s one reason why the UK savings ratio – the percentage of disposable income saved in a household – leapt from 6% before the pandemic to 29% in the second three months of the year3.

This equates to a lot more cash sitting in bank accounts. It also represents an opportunity to make that money work harder for you. After all, extra money in the bank is great for peace of mind, but there’s a decent chance that it’s losing a bit of its value with every day that passes.

So what are your options? Here are a few to consider.

Clear or cut your debts

This is the first port of call if you have unsecured debts such as loans, credit cards or overdrafts to pay off. Start with the most expensive first – usually credit cards or payday loans – and take the opportunity to see if you can shift any of your remaining outstanding debts to lower-interest borrowing.

Increase your rainy-day fund

The logic for building an emergency fund that you can access when you need cash at short notice can rarely have been stronger. While the rule of thumb of keeping between three and six months of savings in a rainy-day pot may sound ambitious, any money you can set aside to dip into in the event of an emergency will bolster your financial resilience.

Reduce your mortgage term

With cash savings rates so low, increasing your mortgage repayments is a particularly effective way to put any surplus income to work. Overpayments on your mortgage can help you clear it more quickly, saving potentially thousands of pounds in interest and also making it easier to remortgage. Most lenders allow you to pay 10% of your mortgage balance as an overpayment each year, but check first because there can be penalties for overpaying by too much.

Build a long-term foundation

If you’ve cut your spending, cleared your debts and have a rainy-day fund set up, you might want to make your spare cash work even harder by investing it. Individual Savings Accounts (ISAs) are the place to start, with an annual tax-free allowance of £20,000 that means you can keep the income and/or growth you receive. Invested in a mix of funds and assets and left alone to benefit from the effects of compounding, stock-market based investments can help you outpace inflation and reach your long-term goals.

Give your pension a shot in the arm

Starting or increasing your pension payments is another tax-efficient way of boosting your long-term finances. Government tax relief is paid on contributions, while if you’re paying into a workplace pension your employer will top it up too.

If you’re still more than a decade or so away from retirement, you may be able to take a certain level of risk with your investment and pension choices in order to increase the potential rewards.

Invest in advice

The events of the past few months may have prompted you to review your finances or reassess your goals in life. In which case, paying for quality financial advice may be the best investment of the lot. Advisers can ensure you’re getting the best from your finances, help you identify what you want your money to do, and work out a roadmap for your future.

Want to find out more about how an adviser could help? Get In Touch.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Our lives have changed in ways we couldn’t have imagined at the start of 2020. Social distancing, wearing masks and sanitising our hands have become part of daily life, while restrictions on movement have forced many of us to press pause on so much that we took for granted.

We’ve had to adapt to different financial circumstances too, in a variety of ways. The effects of redundancy and reduced incomes are well established, with an increase in the number of households struggling to cover their essential outgoings1.

But there is also growing evidence that financial experiences and behaviours have changed in other ways. Spending levels fell by around a quarter during the initial lockdown, according to the Institute for Fiscal Studies2, creating what it referred to as ‘forced saving’. That’s one reason why the UK savings ratio – the percentage of disposable income saved in a household – leapt from 6% before the pandemic to 29% in the second three months of the year3.

This equates to a lot more cash sitting in bank accounts. It also represents an opportunity to make that money work harder for you. After all, extra money in the bank is great for peace of mind, but there’s a decent chance that it’s losing a bit of its value with every day that passes.

So what are your options? Here are a few to consider.

Clear or cut your debts

This is the first port of call if you have unsecured debts such as loans, credit cards or overdrafts to pay off. Start with the most expensive first – usually credit cards or payday loans – and take the opportunity to see if you can shift any of your remaining outstanding debts to lower-interest borrowing.

Increase your rainy-day fund

The logic for building an emergency fund that you can access when you need cash at short notice can rarely have been stronger. While the rule of thumb of keeping between three and six months of savings in a rainy-day pot may sound ambitious, any money you can set aside to dip into in the event of an emergency will bolster your financial resilience.

Reduce your mortgage term

With cash savings rates so low, increasing your mortgage repayments is a particularly effective way to put any surplus income to work. Overpayments on your mortgage can help you clear it more quickly, saving potentially thousands of pounds in interest and also making it easier to remortgage. Most lenders allow you to pay 10% of your mortgage balance as an overpayment each year, but check first because there can be penalties for overpaying by too much.

Build a long-term foundation

If you’ve cut your spending, cleared your debts and have a rainy-day fund set up, you might want to make your spare cash work even harder by investing it. Individual Savings Accounts (ISAs) are the place to start, with an annual tax-free allowance of £20,000 that means you can keep the income and/or growth you receive. Invested in a mix of funds and assets and left alone to benefit from the effects of compounding, stock-market based investments can help you outpace inflation and reach your long-term goals.

Give your pension a shot in the arm

Starting or increasing your pension payments is another tax-efficient way of boosting your long-term finances. Government tax relief is paid on contributions, while if you’re paying into a workplace pension your employer will top it up too.

If you’re still more than a decade or so away from retirement, you may be able to take a certain level of risk with your investment and pension choices in order to increase the potential rewards.

Invest in advice

The events of the past few months may have prompted you to review your finances or reassess your goals in life. In which case, paying for quality financial advice may be the best investment of the lot. Advisers can ensure you’re getting the best from your finances, help you identify what you want your money to do, and work out a roadmap for your future.

Want to find out more about how an adviser could help? Get In Touch.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Our lives have changed in ways we couldn’t have imagined at the start of 2020. Social distancing, wearing masks and sanitising our hands have become part of daily life, while restrictions on movement have forced many of us to press pause on so much that we took for granted.

We’ve had to adapt to different financial circumstances too, in a variety of ways. The effects of redundancy and reduced incomes are well established, with an increase in the number of households struggling to cover their essential outgoings1.

But there is also growing evidence that financial experiences and behaviours have changed in other ways. Spending levels fell by around a quarter during the initial lockdown, according to the Institute for Fiscal Studies2, creating what it referred to as ‘forced saving’. That’s one reason why the UK savings ratio – the percentage of disposable income saved in a household – leapt from 6% before the pandemic to 29% in the second three months of the year3.

This equates to a lot more cash sitting in bank accounts. It also represents an opportunity to make that money work harder for you. After all, extra money in the bank is great for peace of mind, but there’s a decent chance that it’s losing a bit of its value with every day that passes.

So what are your options? Here are a few to consider.

Clear or cut your debts

This is the first port of call if you have unsecured debts such as loans, credit cards or overdrafts to pay off. Start with the most expensive first – usually credit cards or payday loans – and take the opportunity to see if you can shift any of your remaining outstanding debts to lower-interest borrowing.

Increase your rainy-day fund

The logic for building an emergency fund that you can access when you need cash at short notice can rarely have been stronger. While the rule of thumb of keeping between three and six months of savings in a rainy-day pot may sound ambitious, any money you can set aside to dip into in the event of an emergency will bolster your financial resilience.

Reduce your mortgage term

With cash savings rates so low, increasing your mortgage repayments is a particularly effective way to put any surplus income to work. Overpayments on your mortgage can help you clear it more quickly, saving potentially thousands of pounds in interest and also making it easier to remortgage. Most lenders allow you to pay 10% of your mortgage balance as an overpayment each year, but check first because there can be penalties for overpaying by too much.

Build a long-term foundation

If you’ve cut your spending, cleared your debts and have a rainy-day fund set up, you might want to make your spare cash work even harder by investing it. Individual Savings Accounts (ISAs) are the place to start, with an annual tax-free allowance of £20,000 that means you can keep the income and/or growth you receive. Invested in a mix of funds and assets and left alone to benefit from the effects of compounding, stock-market based investments can help you outpace inflation and reach your long-term goals.

Give your pension a shot in the arm

Starting or increasing your pension payments is another tax-efficient way of boosting your long-term finances. Government tax relief is paid on contributions, while if you’re paying into a workplace pension your employer will top it up too.

If you’re still more than a decade or so away from retirement, you may be able to take a certain level of risk with your investment and pension choices in order to increase the potential rewards.

Invest in advice

The events of the past few months may have prompted you to review your finances or reassess your goals in life. In which case, paying for quality financial advice may be the best investment of the lot. Advisers can ensure you’re getting the best from your finances, help you identify what you want your money to do, and work out a roadmap for your future.

Want to find out more about how an adviser could help? Get In Touch.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

References

1. FCA, FCA highlights continued support for consumers struggling with payments, October 2020

2. IFS, Spending and saving during the COVID-19 crisis: evidence from bank account data, October 2020

3. ONS, Coronavirus and its impact on the UK Institutional Sector Accounts: Quarter 2 (Apr to June) 2020, September 2020

References

1. FCA, FCA highlights continued support for consumers struggling with payments, October 2020

2. IFS, Spending and saving during the COVID-19 crisis: evidence from bank account data, October 2020

3. ONS, Coronavirus and its impact on the UK Institutional Sector Accounts: Quarter 2 (Apr to June) 2020, September 2020

References

1. FCA, FCA highlights continued support for consumers struggling with payments, October 2020

2. IFS, Spending and saving during the COVID-19 crisis: evidence from bank account data, October 2020

3. ONS, Coronavirus and its impact on the UK Institutional Sector Accounts: Quarter 2 (Apr to June) 2020, September 2020

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