By Mukesh Malhotra
One of the most debatable questions there is when it comes to lockdown savings – spend or hold onto it for a little bit longer? What would you do?
According to YouGov, a third of UK households actually saw their savings increase during the pandemic.
Covid-19 has had a massive impact on the world, causing many of us to swap commutes to the office with a quick walk to the next room, and nights out with our friends became virtual quiz nights and time spent enjoying the great outdoors on our doorsteps.
And you probably don’t need me to tell you that it has also influenced many people’s finances – both for the better and the worse.
The question is why did some people’s savings increase during the lockdown?
This is an easy question to answer – people were spending less!
There were no international holidays, no events such as concerts and festivals, plus restaurants, cinemas, theatres and other entertaining businesses were all shut.
There was no commuting to work so less was spent on travel fares and fuel.
Also, as there was a great uncertainty of what would happen next, people were reluctant on spending any money.
Many industries were affected with staff being furloughed and people sadly losing their jobs.
However, if you were one of the lucky ones that saw your savings increase over the past year, you must be wondering what to do with all that extra cash.
What are people going to do with their lockdown savings?
If you’re not in a rush to start splashing the cash, you’re certainly not alone.
Another study (this time carried out by the Bank of England in March 2021) reveals that only 27% of households planned to spend some of their savings and that only 13% were prepared to spend more than half of what they had saved.2 Instead, the vast majority said they would simply keep the extra money they gained in their bank accounts.
One of the most popular intentions was to use savings to pay off debts. This was followed by investing in financial products and putting a deposit down on a property.
Other ways that people were thinking of spending their savings were home improvement projects, topping up a pension or gifting it to someone.
So, tell me, should I spend to save my money?
If you’re undecided about what to do with your extra savings, then you may have thought about putting down a deposit on a property or a home improvement project (if you already own a home).
However, if you’re new to investing, or are still a few years off retiring, then investing in financial products or topping up your pension probably never crossed your mind.
Can I have actual examples of what I could do with my savings?
It doesn’t hurt to keep some money aside by having a rainy-day fund.
If you want to continue to grow your savings, leaving your money in your bank account may not be the best option. This is because most basic bank and savings accounts accrue very little interest.
With a little something called a Stocks and Shares ISA, you can take advantage of the UK’s yearly ISA allowance (which is £20,000 for the 2021/2022 tax year) to invest your money and give it a chance to grow
– and the best thing is, you won’t pay any capital gains or income tax as it grows.
And when you choose a platform to invest in, it’s likely the organisation you’ve selected will diversify your portfolio by putting your money in a number of different investments (which will vary depending on the type of plan you choose) to spread out your risk and help give your money more potential.
If you’re concerned about the environment or are passionate about social issues, you can even choose to invest in ethical companies that align with your personal values and are committed to doing good.
So, why not use a Savings calculator, which is readily available – and see what you could gain?
And even if you didn’t see your savings grow as much as you wanted them to in lockdown, you can still invest if you want to.
It’s an outdated myth that you can only invest in the stock market if you’re sitting on a big wad of cash.
There are some platforms that you can set up your investment plan with as little as £1. However, remember that your capital is at risk and you could get back less than you put in.
If you choose a Stocks and Shares ISA, all you need to do is specify how much you want to initially invest and how much you want to invest monthly.
Ready to see if you can get more from your lockdown savings?
Here are some sources which I’ve used to help pull this mini-blog together:
1. https://www.bloomberg.com/news/articles/2021-06-19/british-hoard-more-cash-than-16-other-countries-during-pandemic
2. https://www.bankofengland.co.uk/bank-overground/2021/how-have-households-spending-expectations-changed-since-last-year
3. https://news.sky.com/story/average-uk-house-price-surges-by-10-and-nears-record-high-12355676
4. https://www.bbc.co.uk/news/business-55618528
5. Louise Cunnah from Restless
The tax treatment depends on your individual circumstances and may be subject to change in the future.
**Please remember the value of your investments can go down as well as up, and you could get back less than invested.**