People don't believe in saving anymore?
New figures from the Bank of England shows that we have all given up on the idea of saving for the future- collectively taking £23 billion out of long term savings in the last 12 months. That equates to £900 per household and analysts have calculated that this is the fastest rate of withdrawal of nest eggs for almost 40 years.
However, this isn’t necessarily bad news. Much of this money has either been shifted into instant access savings accounts or current accounts for immediate spending ability or it has actually been spent. While spending might not help individuals’ financial outlook, consumer spending does help boost the national economy, and could lead to greater prosperity through new jobs and possibly even payrises.
But you can’t blame people for dumping their notice accounts- with many paying piffling rates of interest you may as well earn nothing in an account where you can access your money more easily. Perhaps people are just getting cannier with their cash and looking at alternative investments to offer a more meaningful return.
Peer to peer lending has been on the radar for some time, with some lenders offering guaranteed returns (ie you are protected from bad debts) that beat deposit rates into a cocked hat. These have become so popular that rumour has it the Chancellor will announce a consultation on Thursday into whether such investments could be held tax-free within an ISA wrapper in future. This type of investment will come under FCA governance next year, and many already have robust financial management systems and protection in case of going bump, but remember that investments here are not covered by the FSCS £85,000 protection.
Perhaps people are just sticking cash in ISAs instead? 100% of an interest rate is better than 80% of it (after 20% tax deducted at source), even if it is teensy weensy- many ISA accounts are no-notice accounts and classed as short term savings even if the intention is to hold the cash there for some time. ISA limits are also something that may come up in the Autumn Statement- people have cottoned on to the idea that they could substitute ISA saving for pension saving without the restrictions and the Chancellor may therefore decide to impose an overall limit on contribution to spoil our fun.
Or maybe people are throwing caution to the wind and going for the riskier side of investing. While investing directly in company shares can be treacherous, it can also be lucrative, as the Royal Mail shareholders can testify (note that the subsequent Merlin Entertainments and Infinis Energy IPOs have not been as successful in the short term). But there are less drastic ways of trying to make a turn- corporate bonds are making a comeback as an attractive investment, as they often offer higher rates than banks or Government stocks. Here, you are essentially lending the company money, and at the end of the term, you should get your loan amount back, plus a sensible amount of interest. Assuming the company doesn’t go bust that is…
You can find examples of available corporate bonds through a broker, for example this 5% bond with Premier Oil plc.
As ever, whatever you decide to do with your money should be a considered decision made after determining how much risk you are prepared to take with the cash. And if the answer is “none”, you might decide to stick with miniscule bank returns. Or invest in a new telly.