Coronavirus. All About your Savings – and Where to Put Them

Lloyd French of Delaunay Wealth Management offers his views on savings, and some good advice on your next steps during the Coronavirus pandemic.   

Are you one of those people who’s always put money aside in savings schemes, and carried on doing so – regardless of Covid-19? Possibly, you’ve become an inadvertent saver.

Perhaps you’re not a regular saver, but as we enter what could be a second wave of the virus, you’re coming round to the idea. With a brief respite and lifting of lockdown restrictions over the summer, we’re potentially facing another draconian shut down

To paraphrase Captain Oates (he of the Antarctic expedition fame), the Coronavirus, and the havoc it’s wreaked on our economy and freedom, may be with us for “some time”.

Spending Down – Savings Up

Debt-fuelled consumer spending came to an abrupt, screeching halt (or so it seemed) practically overnight in March of this year.

Lockdown froze most of our non-essential spending. Where once we paid out, now we started squirreling away.

With international travel a no-no, non-essential shops, and all pubs and restaurants closed, there wasn’t much to spend our money on. With so many people working from home, even steep commuting costs were slashed. Plans for a new car, or for home improvements were put on hold. In my view, there’s also been the “fear factor” – widespread nervousness about recession and job losses.

Lower-income households – and, in a different way – self-employed directors of limited companies have been economically affected by the pandemic. However, many of us fortunate enough to be in employment or with less impacted businesses, became quasi-accidental savers.

Money in the Bank

The Office of National Statistics tells us that deposits into accounts increased by a record £25.6bn in May, following strong increases in March and April (source https://www.bbc.co.uk/news/business-53234128)

Consumers, it would seem, have been stashing their “spare” money away. Perhaps, in hard times, we’re all becoming better at managing our money.

But.

The interest rates offered by banks and building societies, already at a long-time low, fell dramatically during this time. They tanked, actually. The Bank of England cut its base rate not once, but twice. It now stands at 0.1% (source https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate).

What’s more, the latest 12-month CPI inflation rate for August stands at 0.5% in August, which is down from 1.1% the month before (source https://www.ons.gov.uk/economy/inflationandpriceindices)

So, the price of our weekly grocery shop remains reasonably static – good. Yet, given that money in a savings scheme should grow by at least the rate of inflation and that’s also static – not so good.

On the one hand, the government would like us to spend, spend, spend for an economic kickstart.

On the other, with returns close to zero, could people simply be putting figurative sums of money under a metaphoric mattress in case of job losses? Possibly. Money in, then out again in order to pay the mortgage and the bills.

(Out of interest, there are a number of banks offering penalty-free access to fixed savings accounts to help people access their money, if cash flow becomes a problem.)

What We All Need Now, Is…

Certainty.

We may have to wait some time for this.

The well-received government furlough scheme will be coming to an end soon. Like ripples in a pond, the knock-on effects of job losses could reach far. Therefore, here at Delaunay we think that there has never been a more vital and important time to get a robust handle on your financial situation.

First and foremost, although it all sounds like gloom and doom, do talk to us.  We’d be happy to discuss your overall finances, not just savings queries or concerns. We’re also pensions and investments specialists and can help you achieve your medium to long-term goals. You can get hold of us on 0345 505 3500.

Things to Consider for Would-Be Savers

Smaller banks could offer better rates. 

Buyer (or saver) beware: although there’s been government support for smaller institutions, they could experience difficulties. Still, it’s reassuring to know that up to £85,000 of your money is protected by the Financial Services Compensation Scheme. Good news: if you have a joint savings account, the amount is doubled.

Spread Your Risk

We can offer advice to help you navigate the myriad savings schemes on the market. In a nutshell, you could lessen your risk by spreading your money out, as it were.

Do YOU have an Emergency Fund?

Setting aside immediately accessible funds is one of the most important things you can do. We think that this describes the expression “peace of mind” very well, and you can’t put a price on that right now.

Ideally, you should be stashing 3-6 months of basic expenses to cover your mortgage, bills, grocery and car expenses (or any other essential spending). This may sound like a lot of money, but – you could face redundancy; your spouse, too; Or, well – anything could happen. We’re in uncertain times so we’d advise some forward planning if you can.

How Accessible Do You Need Your Money to Be?

Think about how quickly you would need to get at your savings: immediately, 30 days, 3 or 6 months, 1 year or even 2 years?

Longer term availability means better rates. Lock up your money to get back more money – if this is possible for you.

Would a Cash ISA work for you?

Whilst we focus on medium to long-term investments and specialise in stocks and shares ISAs, a cash ISA is a simple tax-free savings account, and there are different types. For the 2020/21 tax year you can save £20,000 without telling the tax man about it – BUT, although there are still decent returns, many of the top rates have taken a tumble.

Consider National Savings

NS&I is one of the largest savings organisations in the UK. It’s a government department and Executive Agency of the Chancellor of the Exchequer. This means that you’re (in effect) lending to the government – but with 100% security.

Very low-risk and of course with interest rates to match, NS&I is the place for Premium Bonds and other “straightforward” savings schemes, including tax-free ISAs. Perhaps a good, easy option if you want to save, yet have short-notice access to your money.

What’s Your Tax Position?

Delaunay will be happy to offer you advice on tax efficient investments and how best to optimise your reliefs and allowances. This area of tax is complex so do get in touch if this is of concern to you.

And finally,

Don’t be Concerned about Volatility

Markets fluctuate and are uber-sensitive to the world around them. The nature of capitalism itself – a degree of boom and bust – is normal. We’re living in interesting times, to say the least. Stay calm in times of troubles if you can.