The Covid-19 pandemic has meant the risk of job losses and wage cuts for many households, but for others it has meant big savings from lower spending in lockdown.
New figures from the Bank of England show exactly how much the lucky ones have been managing to save as a result of the curbs on our activity. The Bank said that households and businesses added £16bn in cash deposits in the month after banking an average £53bn a month from March to May. These compare to average monthly savings of just £8bn in the months leading up to lockdown.
Much of these savings will end up in current accounts where rates of interest are near to zero. Those who seek out a better return from the cash may be able to get rates of around 1% if they are prepared to tie their money up for a period.
The low rates on cash will prompt many to seek a higher return from investments. By investing savings in assets like stocks or bonds you are taking the risk that your money could lose value, which doesn’t apply to cash savings. But if you have built up sufficient cash savings, this risk could be appropriate.
If you stick all your cash savings into investments in one go you will create the potential for a nasty cliff-edge, should markets take a sudden fall. This is perhaps the scenario that cash savers fear the most.
By setting up an Investment Account and paying into this from cash reserves each month, you won’t be risking it all. If markets fall, that hurts the money you have invested but it means that the money you invest next month will buy more assets. You are buying low (or lower), which is a decent investing principle to follow.
When prices recover, as they tend to do in the long term, you will feel a bigger bounce.
How much cash savings do you need before you invest, and what should you bear in mind if you want to make those lockdown savings work harder through investing, please send me a message to discuss further.
Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
I am an Independent Financial and Mortgage Adviser and have worked in Financial Services for over 12 years. During my career I gained experience in assisting both individual and corporate clients.…
