One of the great themes of the past 3 years has been accidental savings: the amount people in the UK have \u201csaved\u201d by the simple expedient of not being able to go out and spend.<\/p>\n
\u201cThrifty Brits stash the cash in lockdown\u201d has been a typical headline, quickly followed by an estimate of how much cash we might have \u201cstashed\u201d through not going to the pub, eating out or buying new clothes. One estimate put the figure at \u00a3160bn, with the Bank of England suggesting that up to 5% of this could be spent, and hence boost the UK recovery. Economists at Deutsche Bank went further, suggesting that around 10% could be spent on nights out, holidays, cars and more.<\/p>\n
\u201cWould I be shocked by \u00a320bn of extra spending? No,\u201d said economist Sanjay Raja. Spending on this scale would comfortably add between 0.5% to 1% to UK GDP.<\/p>\n
But however much is spent, that still leaves a huge amount of money that is not spent \u2013 a huge amount of money that remains \u201caccidentally saved.\u201d According to Peter Flavel, the CEO of Coutts, however, we are not saving wisely.<\/p>\n
Looking at it from the point of view of an Australian who has lived and worked in several countries, and is now in the UK, Flavel makes a simple point. The UK\u2019s Individual Savings Account (ISA) is \u201cpotentially the best medium term savings product globally.\u201d But, he argues, \u201cthey are not used very well, [in fact] they are used badly.\u201d<\/p>\n
As you may well know, a couple can invest \u00a340,000 per year into ISAs. Junior ISAs have a limit of \u00a39,000 per year. The products enjoy tax advantages and give immediate access to your cash if it is needed. Small wonder that Flavel describes the ISA as a \u201cWorld Champion\u201d amongst saving options.<\/p>\n
According to recent statistics around 20% of the UK adult population have invested in an ISA \u2013 but what concerns Flavel is that the overwhelming majority of these ISAs (76%) are held in cash, meaning that with low interest rates and inflation, the real value of the ISA could actually fall over time.<\/p>\n
We take a balanced approach to financial planning. It\u2019s often a good idea to keep some money in cash, after all none of us know when we will need access to our \u201cemergency fund.\u201d But Peter Flavel makes a very valid point: it is important that we do not allow a disproportionate amount of our savings to accidentally accumulate in cash. It runs the risk of unbalancing your overall financial planning portfolio, giving you a more cautious approach than you might otherwise want or need, and, with low-interest rates likely to be the norm for some time, it also risks poor returns. Of course, where that balance lies is different from one individual to the next.<\/p>\n
If you are interested in finding your own ‘balance’ then do not hesitate to get in touch with us. While \u201cI\u2019ve accidentally got too much cash\u201d doesn\u2019t sound like a problem, in financial planning terms it very well could be.<\/p>\n","protected":false},"excerpt":{"rendered":"
One of the great themes of the past 3 years has been accidental savings: the amount people in the UK have \u201csaved\u201d by the simple expedient of not being able to go out and spend. \u201cThrifty Brits stash the cash in lockdown\u201d has been a typical headline, quickly followed by an estimate of how much cash we might have \u201cstashed\u201d through not going to the pub, eating out or…<\/p>\n