For Britons seeking stability and resilience, making good savings habits has become essential.
This is as true today as it was during the height of the high-inflation, high interest rate environment. Yes, there are predictions that the Bank of England may cut the base rate throughout 2025, but there are no guarantees. Savers need to stay proactive and maximise opportunities in times when the outlook can be volatile.
But, firstly, let’s start by answering the big question: how does market volatility impact savers?
Market volatility can impact all different types of savers – from those with their nest egg split between a half dozen different savings and investment products to those with their money in a shoebox beneath the bed.
For example, those who have savings tied up in stock market-based products such as stocks and shares ISAs or pensions may receive fluctuating returns; those who invest in traditional savings accounts may be affected by the inflationary pressures of an unpredictable market, wearing down the real value of their savings.
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This uncertainty is why savers have to prioritise strategies that can help with financial pressures due to the kind of unpredictable economic events that have become the new normal. A thorough, well-planned approach can provide a safety net for consumers, reducing their chance of ending up on the back foot if the unexpected happens.
Savings strategies for building resilience
Firstly, starting and maintaining an emergency fund is a simple way of ensuring you have money set aside for unexpected changes in market conditions. Savers can direct a percentage of their salary into a savings account or product each month that’s less accessible to daily spending. This can make you less likely to dip into this pot if you know it’s only there as a last resort.
In addition to an emergency fund, having a diverse range of savings products can only be a positive. A portfolio of different products doesn’t just offer you the opportunity to get better returns, but it also protects you from sudden changes in the market.
Take fixed-term high-yield accounts, for example. Locking all your money into a high-yield account for a fixed term is often the best return on your savings – so, putting all your money in is a no-brainer, right? Well, if you need to access that money in the middle of the fixed term, you’ll likely lose all the returns you were promised.
That’s where easy-access accounts have the advantage – they may not provide the highest returns available, but knowing you can access some of your savings in the short term can be a weight off your shoulders.
Taking the combined approach of a mix of savings products is the most effective approach. It means you can still enjoy the higher yield of fixed-rate savers while enjoying the flexible, and accessible, benefits of easy-access accounts.
There are other savings products – ISAs and pensions – that also add another layer of diversification to savings portfolios and can aid your short-, medium- and long-term goals. By not being overly reliant on one type of financial instrument, savers can make their money go further and protect themselves should one of the products be significantly hit by market volatility.
A diverse mix of savings products is a great start, but savers can still do more to protect themselves from nasty shocks. Remaining proactive is another great strategy, keeping you in a position to adapt to whatever the market brings.
Adapting to market shifts
Savings are both your safety net during tough times and a crucial avenue for seizing opportunities to end up better off. By understanding what’s happening in the savings market, consumers can make investment decisions with greater confidence.
Whether that’s by seeking expert financial advice, taking the time to read about the state of the market, using apps that provide real-time feedback or automated savings options, or just making the effort to gain a better understanding of savings – it’s all going to help in turbulent times.
By diversifying your savings products, maintaining that all-important emergency fund, and staying informed about changing market conditions, savers can limit the effect of market volatility and improve their financial wellbeing.
Ultimately, smart saving is key to turning any economic uncertainty into opportunity. By taking a proactive and informed approach to savings, savers can equip themselves to not just weather any economic storm but pave a path to a brighter financial future.
Paul Noble is CEO of Chetwood Bank
