When social-distancing restrictions are lifted, many might think twice before reverting to pre-coronavirus spending habits.
People should question whether they truly missed all aspects of their pre-Covid entertainment expenditure and consider whether some of that money could be put to better use – towards a rainy-day pot, deposit for a house, or extra investment.
FTA: What tax measures would help savers, in your opinion?
MJ: I think the current Isa and savings allowances are generous enough as is, although the Isa allowance has been frozen for a long time and that might start to have an impact down the line.
The uninitiated need an incentive to start savings actively and better educational tools, which help people see what a difference starting early can make, could be the biggest incentive of all.
The Financial Conduct Authority launched a consultation to reform the easy access cash savings market back at the start of 2020.
They were designed to improve competition in the market, encouraging firms to increase the interest rates they offer as well as protecting those consumers that currently receive the lowest interest rates.
But the work was stopped completely, with the continuing impact of coronavirus and the low-interest rate environment cited as the reasons.
In particular, the FCA said that “As interest rates for new products fall, so does the gap between rates paid to new and longstanding customers, and the size of the harm falls.” There are no easy answers here.
While the coronavirus crisis highlighted the importance of having cash savings for a rainy day, long-term savers should take care to not to keep more than they need in low interest accounts because it can be eroded by inflation.
Savers who can afford to keep their money locked up for at least five years could benefit from investing.
While the potential for greater returns from the stock market comes with inevitable risk, taking a long-term view means you can smooth out some of those highs and lows while benefiting from the long-term potential that comes with this approach.
