'Saving money is pointless'

Can't save, won't save. As the UK faces a long period of economic uncertainty, the latest figures on our personal finances make for worrying reading

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The Independent Online

A quarter of British people say their savings pots shrank in 2016, while just a third found it possible to increase their savings. That’s according to research from Munnypot, which also found that many people feel there is very little point to putting money aside.

The situation is even worse for low-income households. New data from the StepChange Debt Charity reveals that 29 per cent of British adults say that in the last 12 months they simply had no spare money with which to make savings, and 45 per cent of people earning less than £20,000 said they were unable to save in any of the last 12 months. 

It’s a real problem, because the charity has shown that if every household had £1,000 in savings then 50,000 families a year could be protected from problem debt.

However, the Munnypot research shows that while the vast majority of people (76 per cent) say they want to save more money each month, the remaining 24 per cent dismiss savings accounts as "pointless" due to record low interest rates, according to the newly launched financial advice website. And it’s easy to understand savers’ despondency. The Bank of England base rate fell to 0.25 per cent in August last year, after more than seven years at the then-record low of 0.5 per cent.

Add to that inflation jumping to 1.6 per cent in December, up from 1.2 per cent in November, as measured by the Consumer Prices Index. Analysis carried out by the Moneyfacts comparison site earlier this month revealed that just 44 out of 669 savings accounts were actually beating inflation, meaning that most savers’ cash is being eroded by inflation.

Data shows that there continue to be more cuts in rates than hikes; in December alone 21 accounts saw their savings rates increase, but that compared to 84 that cut the interest that could be earned. That sounds bleak but it was actually a slowdown in cuts compared to previous months.

It’s a situation that some predict will worsen before it gets better. Rachel Springall, finance spokesperson at Moneyfacts, commented: "With inflation expected to rise significantly over 2017, it is sadly going to stay a dreadful time to be a saver. While there was a welcome slowdown in the number of cuts to savings rates last month, consumers will remain underwhelmed by the lack of competition for their cash.”

Easy savings

Inflation may be high and interest rates may be low but having savings in place is still essential. It’s widely recommended that people aim to have at least three months’-worth of savings in an easy access account so that they can weather emergencies such as redundancy or sickness.

However, figures released by the Money Advice Service show that four in 10 (16.8m) working-age British people have less than £100 saved to cover them in an emergency.

Nick Hill, money spokesperson at the organisation, said: “For some on low incomes, saving is a real challenge as they may simply lack the income needed to save at all.

“But for many, developing a savings habit is very achievable. Regular saving is key to building up that buffer against those life surprises. If you earn enough to set even a little aside each month that’s great – a direct debit into a savings account might be an easy way to do this, even if you start small and increase the amount with time.

“Our research also showed that if people set a manageable savings target, they’re usually able to reach it. Setting a savings goal – in the case of our study of £100 a month – was shown to have a positive impact on people’s financial skills and their attitude towards savings.”

Making your money make more

There’s little that can be done to encourage those people who simply feel it is not worth putting money aside only to see its value be eroded more rapidly than it earns a return. And some savers have cash set aside but don’t think it’s worth proactively managing that money because they believe there are no competitive deals.

Ms Springall added: “Some savers feel it is pointless to shop around for a better deal, assuming poor rates are everywhere, despite the majority not knowing how their current rate stacks up.

“While savers may feel discouraged, it is still important to keep on top of the savings market, even if just a fraction more can be gained in interest. Since the start of 2017 we have seen a small selection of providers making minor improvements to their savings rates, including challengers such as RCI Bank, Post Office Money, Ikano Bank and Sainsbury’s Bank. While this is positive news, there is still a significant way to go before we can see rejuvenation in the market.”

Those challenger banks can be an excellent way for savers to make more of their money. A December report from MoneySuperMarket revealed that new banks were beating established competitors across a range of savings products.

Kevin Mountford, banking spokesperson for the website, commented: “You shouldn’t shy away from lesser-known brands, as they are still secure and trustworthy, especially as it seems the traditional banks aren’t interested in giving savers better rates at the moment. The FCA has recently introduced rules forcing firms to provide clear information on their savings products so comparisons can be made more easily than before.”

Greater returns, greater risks

Many frustrated savers will turn to alternatives to savings accounts in an attempt to earn some real returns on their money, especially if they rely on those savings for their income.

Growing numbers of savers have turned to peer-to-peer lending, which offers a return of as much as 4.4 per cent while still maintaining access to your money after 30 days’ notice. It’s been described by some as a hybrid of investments and saving, and last year around £3bn was exchanged through peer-to-peer networks.

That’s a number that is widely expected to grow this year now that more providers are offering innovative finance ISAs, allowing savers to hold their investments in a tax-free wrapper.

However, their investments are not protected under the Financial Services Compensation Scheme and access to your cash relies on "normal market conditions"; so there’s no guarantee.

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