Savings Accounts in 2020: What should you do with your money?fjpinvestment
For many, savings accounts are a staple when it comes to a financial strategy. In fact, almost one in four (79%) hold some money in a savings account.
However, we are seeing an evolution of the financial space over the past decade or so. With a growing number of options for consumers to grow their money, we are seeing a shift in behaviour, with more savvy investors moving away from this once essential financial instrument towards alternatives with a view of growing their capital.
Why are people moving away from savings accounts?
A significant reason for the rise in investing as opposed to holding money in a savings account is due to low level of interest rates.
Looking back to 2008, the Bank of England had a base rate of interest of 5.5%. Fast forward a year, following the global financial crisis, interest rates plummeted to 0.5%. Since the crash, interest rates have remained at 1% or below, meaning that many holding money in savings accounts have lost money in real terms when compared to the rate of inflation.
In addition to the low level of interest, the rise in accessible and profitable alternative investments in recent years has further given savers and investors alike a reason to look elsewhere. With many of these alternative investment options, such as loan note investments offering high returns, individuals are eyeing up the increasing number of investment options over traditional saving accounts.
Here at FJP Investment, we commissioned a survey asking over 2,000 certified consumers their attitudes towards savings accounts. The survey asked consumers if they currently hold savings accounts and how they plan to manage their finances going forward.
Britons still prioritise savings
Firstly, of those that responded, Britons held an average of £18,000 in savings accounts with 79% of those responding holding money.
A third of respondents had over £10,000 in savings, with 5% having more than £100,000. This figure rises to 12% in those over 55 with the average in this age bracket being just over £31,500, bringing the average up quite noticeably.
These high sums may come as a surprise to many. With the low level of interest and greater levels of inflation, you have to question why so many are choosing to keep money in a savings account.
Safety remains a priority with savings accounts
The major reason for those keeping money in a savings account is no surprise, this being the level of safety a savings account provides.
59% of those that responded, with accounts of more than £1,000 said that they prefer to leave money in an account over undertaking an investment due to the greater security that it provides, particularly in this turbulent time surrounding the political and economic uncertainty in the UK.
Whilst there is no arguing a savings account is safer than making an investment, many are growing uncertain of their plans with money going forward. The general consensus through feedback and responses to questions implied that we may begin to see more people opt to make an investment.
Indeed, 38% said that if interest rates remain low over the coming year, they will look to make an investment, through fears of continued real term loss. This figure rises to nearly half (48%) with respondents under the age of 35.
Changes could be afoot
It appears as though people will continue to change their financial strategy going forward into 2020. 18% of savers (this figure doubling in younger savers) have already shifted money out of their traditional saving accounts in the past year alone.
A proportion of this is the rise in challenger banks. Indeed, banks such as Monzo and Revolut are allowing consumers to move money with far greater ease across more than one currency, showing that consumers are beginning to prioritise ease of use with their money.
A further percentage of this figure is also borne out of frustration. 61% said that banks need to be clearer in explaining the different accounts available to them. However, savers are growing hungry for better returns, with many moving monies from savings accounts to investments, a trend we see continuing into 2020 should interest rates remain low.
Savers are eyeing up greater returns
With the average sum in savings remaining relatively high, the question is no longer what savings account is best for them, rather what other options should be explored. We see this with the results, over a quarter (26%) said they had consulted a financial adviser to help form an investment strategy going forward.
Combining this with the rise in popularity of debt investments, this being a leading form of alternative investing to grow money, we see the continued shift going forwards.
To condense these findings, as of April 2019, 9% have made a debt investment within the last 12 months, with a further 20% saying they are considering making a debt investment in the near future. With 30% of these respondents valuing the fixed, high level of returns, coupled with the relative safety and short-term nature of the investment, it feels but a matter of time until savers begin to eye up investments of this kind.
Looking to the future
The research conducted suggests that we may see a noticeable shift in the financial market over the coming 12 months.
Of course, a lot of this will depend on the political landscape and the level of interest rates going forwards. We predict, like many, that interest rates will remain low. With a growing number of savers eyeing greater returns to make their money go further, less are going to be holding large money in savings accounts.
However, the savings account is a staple for many people’s financial strategies and continues to serve an important purpose. Where we certainly do not predict the savings account to become redundant at any point in the foreseeable future, we do see many drawing a proportion of money from their accounts and placing this into viable investments to tackle the effects of real term money loss.