Savings warning as ‘hard-working’ Britons urged to take action with ‘spare cash’
Martin Lewis gives advice on paying mortgage with savings
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Saving money is considered a challenge for some, however, certain circumstances could mean Britons have more to put away, either for a rainy day, or while working towards specific financial goals. Whatever the motivation, there could be hurdles to encounter along the way. However, meeting these head on and not sticking one’s head in the sand is considered to be the best course of action. In this regard, Express.co.uk spoke exclusively to Annabelle Williams, personal finance specialist at Nutmeg, who provided further insight into the savings landscape at present.
She said: “There is really a cost of living crisis in Britain at the moment, where people are struggling to make ends meet. A lot of that is driven by a late-stage capitalism idea where wages are kept low so companies can keep as much money as they can. It’s expensive to buy things, but people don’t earn enough as wages have been stagnant.
“The thing is that while there is a lot of focus on the people at the bottom end of the rung, a lot of people who are hard-working and doing well for themselves can’t afford to save as much as they want to, to plan for the future and achieve their goals. That is such a huge problem.
“The COVID-19 crisis, though, has presented an opportunity for individuals who have been lucky enough to keep stable employment. People can put more money aside, as they’ve had a period of enforced lack of spending.”
While a savings habit is admirable amongst Britons, there are important actions which need to be taken from this point on. This will help individuals maximise their finances and truly make their money work for them.
Ms Williams continued: “With money, the thing that people always ask is ‘What should I do with my spare savings?’. Some people will say they should put this towards their mortgage payments, for instance, whereas others could argue that they should start investing, perhaps for the first time. There are, of course, pros and cons to each.
“Really, a lot of people always think about whether they should be investing, getting stocks and shares for example. But if you have a massive mortgage, making overpayments is going to be a way for you to save money overall.
“In a sense, this is a risk free option for you to undertake. Even if property prices fall where you live, you will always need a place to live, you will always need a roof over your head – that security is particularly important. You don’t lose money. It is lower risk than investing.”
Ms Williams acknowledged that it is still “early days” in terms of how people are starting to reckon with the fallout of COVID-19. However, she was pleased to note many Britons are keeping up with savings habits they may have developed during multiple lockdowns.
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This, she said, could be advantageous, given the fact many people appreciate the need for a financial cushion far more given the events of the last year and a half. However, sticking money into a savings account may not be the best option in this regard.
She added: “The highest rate currently available on an easy access cash account is 0.58 percent. That’s obviously exceptionally low, and I can’t imagine interest rates are going to rise at a decent level any time soon. So if you want to know what to do with your money, you’ll need to ask yourself a few fundamental questions.
“Firstly, how big is your financial cushion? You should have at least three to six months worth of money put aside to cover those emergencies.
“If you work in a profession, or an industry where you know you’ll find a job relatively easily, then maybe you’ll be safer on the three months worth of living costs.
“But if you work in a cyclical industry, or if you don’t have a partner, or if you have children to support – think about heading more towards the six month mark. It’s a far better idea.”
Once a cash cushion is developed, Britons might still have some of their funds left over. In this case, Ms Williams said, it is important not to just sit back and let cash languish in low interest rate accounts.
Instead, individuals can take action to tackle other aspects of their lives financially, and improve their monetary situation. This could benefit them both now and in the long-term.
Ms Williams concluded: “You really need to then look at how many years are left on your mortgage. House prices have risen so far beyond affordability for those on average earnings, that people are getting mortgage support from others. People are taking out a really long mortgage – 40 years is fairly common.
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“Shorter mortgages mean people have paid off their mortgage before they reach retirement, and then can divert cash towards their pension.
“But for those with a longer mortgage term won’t pay off their mortgage until later in life, and it may not give them very much time to save towards the retirement they have hoped for. Making overpayments could make a massive difference.
“Ploughing money into your mortgage, however, means that if you need that money in the future, need access to it, you won’t be able to get that back out easily.
“But you are still able to get it in theory. You could remortgage, or undertake a process of equity release.
“There are ways of getting money out of your property, although these can be very costly or time consuming, so should always be considered carefully.”
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