Savings are a key part of any financial plan and new research from Paragon Bank has revealed that savers have been prioritising their financial future, even with the pandemic taking a toll.
Paragon Bank, utilising data from CACI’s Current Account & Savings Database, found that British savers have put a record amount of money aside during May 2020 as the Covid-19 lockdown entered its fourth month.
Easy access balances grew by £8.4billion in May, a somewhat surprising figure considering the economy has tanked in the face of coronavirus.
However, the same data highlighted that saving balances earning a rate of 0.1 percent or less have nearly doubled since the lockdown came into effect.
According to their findings, 21 percent of easy access balances were earning 0.1 percent or less in February but this increased steadily into the summer months.
A staggering £204.7billion is now earning a low rate of interest, totalling 39 percent of all easy access savings accounts.
Derek Sprawling, a Director of Savings for Paragon Bank, provided the following comments with the results: “The fact balances earning a rate of interest of 0.1 percent or less have doubled since the start of lockdown indicates that people have either given in to inertia or are unaware of the low rate on their easy access accounts.
“Even when rates are low, it’s still important for people to shop around and seek the best deal on their savings.”
Financial experts such as Martin Lewis often implore savers to shop around for the best savings deals they can find but some may be hesitant to do so, believing that the benefit is not worth the hassle.
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However, switching accounts may not be as laborious as some may think, as Derek explained: “In today’s digital world, moving money around to get a better deal is easier than ever and managing a non-linked savings account is often more straightforward than people think”
According to the Money Advice Service, instant or easy access accounts can be opened:
- Over the phone, or
- By going into a bank or building society branch
It should be noted that most people will need to pay income tax on the interest they receive from their savings and as such, basic rate tax (or higher rates for high earners) is normally deducted as a matter of course from an accounts interest rate.
In April 2016, a new personal savings allowance was introduced which will remove the first £1,000 of savings income from an income tax bill.
Higher rate taxpayers will benefit from a lower personal savings allowance of £500.
Non-taxpayers can ask HMRC to have interest be paid without any tax deductions.
The Money Advice Service details that comparison websites are a good starting point for those looking to find better rates.
However, they also implore savers to remember that:
- Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
- It is also important to do some research into the type of product and features you need before making a purchase or changing supplier.
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