SAM BARKER: Saving has never mattered more – but has rarely paid less

22 April 2020

Moneywise’s new deputy editor examines why there is so much apathy towards saving nowadays

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But the true worth of cash saving has never been about good rates. It is about values that many now see as old-fashioned: salting money away and having a safety net should the worst happen.

For years, we overlooked this lesson as a country. Polls over the past five years tend to find around 25% of adults have less than £100 saved up. In some regions that can rise to more than 50%.

The struggles that can be weathered with £100 are few, meaning many have no financial armour against misfortunes such as losing their job or a sudden unexpected bill. That is truly terrifying.

Clearly, many of this group will be unable to save due to low incomes or being unemployed. Some will just have been financially unlucky.

However, far more could save but don’t, and there are many reasons for this.

Many people want to spend their cash on things that make them happy today rather than save it for tomorrow. 

Saving is also not drummed into us at an early age the way homeownership is, and our financial literacy as a country is still low.

Strangely, this can even apply to people who have managed to build up quite a lot of cash.

I once had a shocking call from an elderly member of the public asking for tips on where to put the £1 million she had sitting in her bank account earning nothing. It was her life savings, and she had never invested or taken out a proper savings deal.

I nearly dropped the phone in shock, then suggested she see a financial adviser at once, or at least considered splitting it across an Isa and a few other deals to take advantage of the Financial Services Compensation Scheme £85,000 limit per firm.

“What’s an Isa?” she said.

One of the main reasons for lack of engagement with savings is low rates. Why would anyone get excited about hunting down the best deals when even these regularly do not beat inflation?

Financial companies often do not help us here either with difficult application processes for new savings accounts.

But we have all been given a wake-up call. I believe the coronavirus outbreak, terrible as it is, will make us a nation of savers and remind us again of the real point of saving.

Yes, the Government has stepped in to cover 80% of the wages of furloughed staff, but for a limited period and up to £2,500 a month.

And for many workers, especially the self-employed, getting hands on that cash has been hard and stressful. Many will wait weeks past their normal payday to get the cash, suffering financial hardship in the meantime.

All of this is a reminder that having a few months’ income in a cash savings account paying the best rate available might be boring, but is a good idea.

Sadly, the outlook for savings rates is not good. Many providers have not yet passed on the cut in Bank of England (BoE) base rate to a record low of 0.1% in March. This is built into the rates banks pay savers.

The BoE also gave savers a further wallop in March by unveiling a scheme that lets high street banks and building societies borrow money from it at rock-bottom interest rates for four years.

This disrupts the traditional model of banks, where they pay decent rates to savers in order to get their deposits, then lend that cash out themselves to make money. They will no longer have that incentive, which is likely to drag down rates even further.

But it is not all about good rates. There is always a value in keeping whatever you can in a cash savings account that offers easy access and the best possible interest. There will be few positive lessons from the coronavirus outbreak, but I suspect this is one.  

Welcome, Sam!

Sam Barker is Moneywise’s new deputy editor. Sam joins us from The Daily Telegraph, where he was a personal finance reporter. In almost a decade in personal finance journalism, Sam has also been deputy editor of Mortgage Strategy, reporter at Money Marketing, and won scoop of the year at last year’s Property Press Awards and B2B journalist of the year at the Headline Money Awards 2018.