CIRCA5000 | SAVERS ARE GETTING SCREWED. HERE'S WHY.

SAVERS ARE GETTING SCREWED. HERE'S WHY.

By CIRCA5000 TeamBack to Mission Control

Investment updates • 3 min read

Savers are getting screwed. Here's why. 

Your hard-earned cash is under threat.

Buttering your toast is now 30% more expensive than it was this time last year (Bloomberg). From October, a typical energy bill for a household will hit £3,549 a year (BBC).           

A ray of hope?

Despite the gloomy news, there was a ray of hope on the horizon. The Bank of England raised the base rate by 0.5 points to 1.75 per cent in August. What does that mean? Well, it should mean savers are rewarded with earning more interest, a.k.a. money added to their existing savings by their bank. Simply put, higher bank rates should equal savers earning more on their savings and borrowers paying back more on their loans. 

But something is very wrong. The 5 largest banks have raised some of their mortgage rates to take advantage of the rise in the bank rate. Yet the interest rates on their savings accounts – that is, the reward they should give you for keeping your money in savings – haven’t moved. The way we see it, savers are being shafted. 

A top 5 UK bank celebrated profits of £6.3 billion in 2021. Yet, the interest rate on one of its everyday saver accounts has been a measly 0.01 per cent since December 2021 for savers.

The bank hasn’t increased the reward given to savers in line with rising interest rates. The same bank’s standard variable mortgage rate on the other hand? That was increased to 5.35 per cent when the base rate was raised in August (The Times). If you have a mouth full of coffee, now is the time to dramatically spray it everywhere.

Like big oil’s profit-fest this year, big banks are making record profits at the expense of ordinary people.

To make matters worse, inflation is high now – think Freddo chocolate bars costing 10p in 2005 and now costing 25p in 2022 – your money no longer stretches as far as it once did.

Based on the cost of a Freddo chocolate bar at Sainsbury’s (02/09/2022)

While a savings account used to be a safe place to keep money, inflation is eating away at it daily, reducing what your money will actually be able to buy.

So, how can you grow your savings during stormy times? And how much money should you keep in a savings account anyway?

Most investors suggest having some savings stashed away in a savings account for emergencies – what our Co-Founder Matt would call a ‘cash buffer’ in case something goes wrong. Between 2 to 6 months' worth of living costs is the most agreed-upon range of savings to set aside.

A ‘cash buffer’, or ‘rainy day fund’ is a protective blanket against any of life’s nasty surprises.

When you have savings set aside, the first port of call is to check that your savings account is offering a fair interest rate on those savings. If it isn’t, then it is worth exploring moving your savings to an account offering you a better rate. 

Once your rainy day fund is ready in a savings account offering a fair rate and you’ve addressed any high-cost debt, it’s time to think about the long game.

Thinking long term

At CIRCA5000, we often say that in the long term, the short term doesn’t matter. With the long game in mind, challenging times can mean big opportunities for those willing to invest and stay put.

A quick look at how markets performed over the last 20 years shows us that they tend to trend upwards. But you’ve got to hang around to feel the benefits. One of the easiest ways you can do this is to continue to contribute to your pension each monthor if you don’t have a pension, to go ahead and open one now. 

When it comes to investing in your financial future, you need to stay the course to reap the rewards.

This article does not constitute financial advice and is for information purposes only. Capital at risk.

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