The pandemic has reportedly created 6 million accidental savers, but what’s the best way to use this extra cash?
The effect of the lockdown on millions of bank accounts has been to boost savings for people whose incomes have remained the same but whose spending has dropped.
With the prospect of life returning to a new normal, it’s a chance to think about how to make the most of these savings and build on them too.
Where were savings made?
Working from home meant the cost of commuting was put on hold. Holidays were not booked, and the closure of restaurants, bars and entertainment venues cut spending in those areas, resulting in slightly healthier current accounts.
All this, the Bank of England estimates, resulted in over £125 billion saved in 2020. Its survey does note that only a fraction of this is likely to be spent by households, suggesting a cautious approach.
This is understandable given the drop in income for furloughed employees, the loss of income for the unemployed and an unstable job market.
How to invest your lockdown savings
Leaving your savings in a high-street bank account won’t build much interest. But there are options out there for those who want better returns on what they’ve saved:
- Invest in a stocks and shares ISA – not only will any dividends paid to you be tax-free, but any gains will also be exempt from capital gains tax.
- Contribute to your private pension – this comes with the benefit of tax relief status on your contribution if you’re a taxpayer.
Other ways to make the most of your savings
Aside from investing, there are some useful ways to use any extra money saved during lockdown:
- Pay down debt – if you have lingering debts, whether they’re credit cards or student loans, consider using your extra cash to help eliminate them for good.
- Mortgage overpayments – you could make regular overpayments on your mortgage, reducing its overall term length and the amount you owe on the loan. Check with your mortgage company about their terms and conditions relating to overpayments.
- Build an emergency fund – this fund should contain enough to cover the essentials for a month (like bills, food and your rent or mortgage payments) if anything were to happen affecting your income. Consider opening a separate bank account — easily accessible to you — to store your fund.
A great place to start with all of these options is to create a budget that tracks your income every month compared to your spending, allowing you to work out how much you can put aside.
Our trusted financial advisers are here to help you find the best ways to invest your money to make the most of your savings — whatever your situation.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
- Millions of us became accidental savers during lockdown as a result of a sharp drop in spending and incomes remaining the same.
- There are several ways to make the most of your savings, which build better returns compared to leaving your money in your bank account.
- Consider using your extra savings to pay down debt or put them into an emergency fund.