A surprising number of people have picked up the savings habit in recent months as lockdown has curtailed opportunities to spend. How can this unexpected nest egg be put to good use?
In some cases, the savings have been substantial, with average households holding on to £2,879 during the 13-week lockdown. According to Bank of England figures, the population saved £16.2bn in April, the first full month of lockdown. The average in the six months to February was just £5bn a month.
It is not hard to see where these savings have come from: commuting costs have been slashed and holidays have been postponed. Meanwhile, those day-to-day expenses — a coffee on the way to work or a pint afterwards, haircuts, theatre and cinema trips — soon add up over a period of months.
Of course, for some people, lower spending has been offset by more serious reductions in income, from salary cuts, redundancy and straitened times for the self-employed. But for those able to work from home or whose income has been supported by the government’s furlough scheme, the question is how to make the most of this temporary savings boost.
Many have used these funds to clear debts. The Bank of England figures also show a record £5bn of credit card debt cleared in April, significantly more than the £300m cleared in a standard month.
For others it may make sense to use some of these surplus funds to boost longer-term savings, top-up pensions and add to investments, either through a one-off payment or by increasing regular monthly savings.
Of course, before putting additional funds into share-based investments it is important to consider whether you are likely to need this money in the shorter term. Those concerned about their employment status in the months ahead should look to build up cash savings, even if interest rates are low.
Whether you choose to reduce debt, build up a cash safety net or boost pensions and investments, it makes sense to think about where and how you have saved money during the lockdown and whether you can make more permanent changes to your spending habits.
Most of us won’t necessarily want a ‘staycation’ every summer, but cancelling unused gym memberships or cutting out the cappuccinos as we resume our old routines can help turn these ‘unintended savings’ into a more thoughtful budget that could bolster your finances over the longer-term.