The pandemic and lockdown have changed our buying habits. With many spending options closed, saving has risen. But with interest rates at low levels, how do you find the best return on your money?
By Alistair McQueen, Head of Savings & Retirement at Aviva
It’s estimated that consumer spending fell by nearly a third in the early months of the pandemic 1, as shops and restaurants closed, and travel and holidays were put on hold. On top of this, as is common in periods of economic uncertainty there was also an increase in actual saving 2 as people battened down the hatches in expectation of potentially tough times to follow.
This saving boom has come despite record-low interest rates. The Bank of England sets a headline ‘base rate’ which shapes the interest rates offered by banks and building societies. In 2020, the base rate was cut to just 0.1% 3 in a bid to support the economy. In the Bank’s more-than-300-year history the rate has never been lower. So the pandemic resulted in the unusual situation of savings going up while interest rates have fallen.
Steps to finding a better return
Stocks and shares ISAs, pensions and other investments are potential ways to achieve better returns over the longer term, but it’s wise to keep a proportion of your savings in cash accounts. They offer easier access with low risk.
There’s plenty of choice out there too, both on the high street and online. Despite this, it’s estimated that more than £200 billion of cash savings — or an average of £7,000 per household — sits in products that pay no interest 4.
Here are four steps you could consider if you’re looking to optimise the return on your cash savings.
- Know your current rate: Check the interest rate on your savings — it could even be zero. Then you know what you’re looking to improve on.
- Shop around: Busy lives often mean we’re too busy to change accounts, so we stick with our existing product even if the interest rate is poor. The good news is the expanding range of cash-saving providers and products. High-street banks usually have well-known names, but options have been increased by the growth in online banks, and the ability to shop around has never been greater.
- Stay safe: Many high-street names will be familiar, bringing a feeling of security. But don’t let that put you off considering less-well-known names. All UK banks and building societies are covered by the Financial Services Compensation Scheme. This means that up to £85,000 of your money (in each banking group you have any) is protected. This should provide peace of mind for most — and if you’re not sure whether a provider is part of the scheme, especially if it may not be a UK business, you can use this this free online protection checker.
- Explore ‘marketplaces’: Online marketplaces allow you to sign up to gain access to a range of different providers and cash-saving options under one roof. This makes it easier to compare rates and means new accounts can be opened without starting from scratch.
These steps are definitely worth the effort. They’re small themselves, but they could make a big difference to the value of your cash savings.