Bottleneck for savings

Personal Finance
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JUST OVER half the adults questioned in a recent Harris poll for Virgin Direct go out and spend any spare cash they have, 6 per cent put it in a piggy bank and 13 per cent drop it in a bottle (in the days when there were sixpences it used to be Dimple Haig, nowadays it is usually an old Maxwell House or Nescafe jar wide enough to take that seven-sided colossus, the 50p coin).

The survey also reveals that 32 per cent of adults have had to rifle through their pockets of spare clothes to find enough cash to tide themselves over to the next trip to the bank or building society, 16 per cent have had to rummage through their drawers, 15 per cent went looking in the glove compartment, parcel shelf or door pockets in the car, and 6 per cent have been on their hands and knees looking under the sofa for it.

Asked what they did with their windfall cash, two out of three said they spent it on treats for family or friends, 55 per cent chose to spend it on a holiday, but one in three admitted to drinking it, 9 per cent gambled it and 47 per cent confessed to spending it on that ultimate fantasy, the National Lottery, where the chances of winning a million are 20 million to one against.

Even allowing for multiple choices, all this builds up a picture of a public with a haphazard attitude to money. Only 58 per cent admitted to saving spare cash.

One problem, by common agreement, is the low rate of interest currently available on deposits in banks or building societies. Even the added attractions of a tax-free Tessa leave investors with little more than 6 per cent return on their money.

This year at least, National Savings seems to have taken a back seat in the battle for savings, perhaps on the dangerous assumption that the public sector borrowing requirement is shrinking fast and National Savings are a relatively expensive method of collecting the cash the Government needs.

Most of the investment managers who rely on attracting investment from the general public also make no secret of the fact that they much prefer lump sum investments. Savings schemes take so long to build up into a worthwhile sum, which makes them reluctant to advertise heavily to attract them, and independent financial advisers rarely recommend these schemes because the up-front commission they earn from a successful sale is not attractive enough.

Regular savings schemes, however, allow millions of investors who are unlikely ever to have more than the price of a holiday or the down payment on a car to make a start on saving for as little as pounds 30 a month.

Better still, regular savings allow investors to buy more assets, shares or bonds when prices are depressed, ready to profit from the upturns when prices start to recover.

This is in stark contrast to lump sum investments, which peak close to the time when assets are expensive; prices of shares, for example, have peaked and are poised for a fall.

There is good reason to believe, however, that there is a potential stream of savings waiting for anyone ready to tap it. Richard Branson, the standard- bearer of unconventional investment houses, claims that the average investor who has signed up to make regular contributions to his PEP rather than a lump sum is putting in more than pounds 125 a month, despite the initial charge of pounds 2 per month.

That is more than the commonly accepted industry-wide average monthly contribution invested in unit trusts and investment trusts.

The average age of the typical investor in a savings plan is also just over 30, whereas the 40-55 age group has accounted for 75 per cent of the lump sums invested to date.