BLOG: It’s time to be more proactive with your savings
Significant changes to the savings market have happened over the past couple of years.
The best buy tables continue to be dominated by new entrant banks offering competitive rates and one could argue better service.
New products have emerged too, last year saw the so-called ‘pensioner bonds’ for the over 65s, while first-time buyers can now receive a government bonus through the Help to Buy: ISA.
Additionally, products and tax changes have become far more flexible and amenable. For example, increases to the annual allowance and greater flexibility across ISAs to the introduction of the Personal Savings Allowance (PSA), which means basic rate tax payers won’t pay tax up to the first £1,000 of interest they earn on their savings. The government has done a great deal to make savings easier and more convenient.
However, the elephant in the room continues to be dominated by the low interest rate environment. While mortgage rates continue to drop to record lows, savers, often the most sensible and cautious in society, have failed to see the returns once offered before the economic crash of 2008.
Some savers have withdrawn money from cash ISAs, instantly losing the tax benefits, and moved their money in high interest bearing current accounts.
While I think it’s right to acknowledge that market conditions haven’t been as favourable to savers, I think we’re now at a point where all savers need to be more proactive about how they make the most month-to-month and year-on-year.
The PSA provides a de facto interest rate rise for the vast majority of savers, so for those who hold a current account that pays up to 5 per cent, then it makes complete sense. For those with a small amount of savings, willing to close their ISAs and also place it in a current account – it’s an aggressive and somewhat brave way of making returns. I’ve always believed the need for a separation between everyday spending and savings and naturally, it does not provide the long term certainty and benefits of an ISA. These current accounts also have their own terms and conditions which can only make saving more complicated too.
For those savers, who do not have the time or want the hassle I completely understand, but there is a need to review your accounts at least once a year. Too many of us are guilty of keeping our ISAs, for example, with the same provider as our current account. Loyalty is not benefiting these savers who are earning next to nothing. Switching is becoming easier and the process can be done online in a matter of minutes.
One huge benefit we have seen in recent years has been the fact that the government and regulators are beginning to highlight bad practises from across the industry. In future, there will be greater transparency and communication to support savers. Believe it or not, some banks don’t print the interest rate on your statement. This should hopefully spur more people to switching to providers who will give them a better rate.
Inevitably, at some point, there will be an interest rate rise and certainly seven years of a low Base Rate will have had an effect on the amount we’re saving as a nation and culturally too. However, I hope, the long term benefit will be that people realise they need to shop around and that there are still good returns to be made.
Simon Healy is managing director for savings at Aldermore