Investments  

Five ways to boost client savings despite inflation

Five ways to boost client savings despite inflation
Photo by Magda Ehlers via Pexels

What does a loss of consumer confidence and the rising cost of living mean for your clients' saving power?

In April this year, the GfK Consumer Confidence indicator in the United Kingdom fell to its lowest level since July 2008, well below market consensus of -33.

This came amid higher interest rates, a rising cost of living and soaring inflation. 

It is also the second-lowest reading since records began almost half a century ago, with the outlook for consumer's personal finances, at -26 and the general economy at -55 a worse reading than when the 2008 financial crisis occurred.

With the squeeze being felt on clients' pockets, here are some possible tips from advisers to help them maximise their savings:

1. Shop around for the best savings rate

Clients' inability to spend during lockdown added almost £200bn to household cash savings. That is equivalent to an average of about £7,000 per household.

One must make any savings work as hard as possible, especially with the recent price increases that most have been feeling recently.

Because interest rates vary between different savings accounts, many commentators would advise on shopping around for the best deal.

To highlight the point, the Bank of England has reported that £250bn of all household cash savings are in accounts paying zero interest.

 

 

 

Carolyn Matravers, chartered financial planner at Old Mill, said: “Cash returns are low, and it is important to apply the same logic to interest rates as we would for energy bills, car insurance etc - consider if they can do any better. 

“We all need cash savings, and it is important to retain an emergency fund to cover anything unforeseen, but clients need to keep the balance under regular review. Is the level reasonable or has it crept up during lockdown?

“If so, they should approach their bank to ask if there is anything more suitable to provide a greater return on their balance."

2. Look beyond the cash Isa

More than £580bn household wealth is in Isas, thereby benefiting from their tax benefits of no tax on returns and no exposure to capital gains tax upon withdrawal.

But, since their inception in 1999, depositors have leaned towards the fixed, low-rate-of-return cash Isa against the stocks & shares Isa, despite the latter's potential for higher long-term returns.

The HM Revenue & Customs figures from 2020 showed nearly two thirds (64 per cent) of the £67bn invested in Isas was deposited in cash products, despite record low rates of interest.

As inflation rises, now may be the time for clients to possibly reconsider the stocks & shares Isa, especially if they are saving for the longer term.

Speaking in February, Rachel Springall, finance expert of Moneyfacts Group, said: “The average stocks & shares Isa fund returned a growth of 6.92 per cent over the past 12 months, which was more subdued than the 13.55 per cent seen between March 2020 and 2021.