You and your savings

With savings rates at an all time low and many people choosing not to save for the future. Clare Francis, editor at moneysupermarket.com, speaks to Tim Mack from NS&I, to get his advice on why people should save and how they can go about it...

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Clare Francis: There’s a lot of confusion and apathy around the savings market and we went out on the streets of Chester just to gauge public opinion, and to see what issues concern them.

Tim Mack, who is from National Savings & Investments, is here to offer his advice and tips based on some of the main issues that were raised. So let’s see what people had to say.

Vox Pop 1 -

Older couple: I don’t think many people can put money aside. Not this day and age, with the recession. It’s bad.

Young family: Because we like to have nice things and use our money for things that we want today. We probably live as we go, we don’t tend to have anything tucked away so there is that risk of having a problem later.

Q1: So Tim, how can we encourage people to save?

Tim Mack: We find that about half the population save regularly and they do that because it makes them feel better, and I would particularly encourage people who do save to talk to their friends and family who maybe don’t about the benefits of it.

Whether that’s in difficult times when you need money unexpectedly, and the only other alternative would be to go and borrow – and if you borrow short-term it’s extremely expensive – to better times when perhaps you want to save up for something. We find that if people start a savings habit and set an objective, even if it’s a small one, it grows from there and it makes them feel better.

If I may do a small example with myself, I found that five times a week I was spending two quid on my very fancy cup of coffee, and I stopped doing that. I’m now down to about 1 a week, which means I can save £8 in a week and that’s over £30 in a month. Over a year that’s over £300. Well at the end of the year maybe I can spend £300 on something I need or really want rather than just frittering away, so we really would encourage people who do save to share the best tips and practices with those that don’t.

Vox Pop 2 -

Lady: I think my Isa’s are paying a 3% at the moment, that’s with Birmingham Midshires.

Girl 1: I have no idea; I have got to say I am very badly informed about this kind of thing.

Girl 2: I have no idea what interest I am getting, no.

Gentleman: We were receiving 5.25% - it’s now down to 3%.

Lady 2: I can’t recall at the moment but we have just changed two, to get a better rate of savings interest.

Q2: So why is it important to keep an eye on your savings rate?

TM: So that you’re getting the best rate possible for the account that’s right for you. As we said earlier a lot of people right now - a lot of banks, building societies and others - offer a particularly good rate for maybe a year or two and then it comes down again, and you need to look out for that.

If you do go for one of those special offers, make a great, big note in your diary two months before it ends so that when it does end you can move into something that’s appropriate and good value to you.

CF: And obviously one of the problems for savers at the moment is following the interest rates that we saw between October last year and March this year, if you haven’t checked your rate it could be paying significantly less than it was this time 12 months ago?

TM: Yes. I mean, one way of looking at that is to try and select a provider that you trust to be fair and consistent. If you do shop around more widely I would urge you to look at the terms and conditions as we’ve said.

The other element, of course, is tax-free saving through an Isa. That’s currently over £3000 and it’s going to go up again very soon, and through an Isa you can find accounts – some of which you put the money in, and if you take it out you are penalised – but others will allow you to move money in and out.

So again, for your early savings perhaps just after your easy access account, I would strongly recommend you look at a tax-free Isa, because tax-free returns for all taxpayers stack up very, very well against the best that anyone else has to offer.

Vox Pop 3 -

Young man: Because I’ve been with HSBC for a long time it was somebody that I trusted, definitely.

Q3: Is rate the most important thing when you’re looking for a savings account, or are there other things to consider?

TM: What customers are telling us is that they will look down rate comparison tables, but often they will look down them until they see a brand that they know and trust. And knowing and trusting them isn’t only that they’ve been around for a long time and are likely to be around for a long time yet.

It’s also about having some experience of how they’re looked after, what the service is like from that business as well, because I think when things got really bad last year we were finding people who’d been attracted by high rates, didn’t understand some of the conditions about how they might get their money back, and found that someone who’d perhaps looked after them very well when they were depositing their money wasn’t around when they needed to talk to them and needed a bit of help. And I think that the events of last year has shown that saving money with somebody [involves] more than the rate.

CF: Although it’s worth remembering that under the Financial Services Compensation Scheme, up to £50,000 is totally protected and I think awareness around that has grown significantly among consumers following the collapse of the Icelandic banks?

TM: Absolutely, very much so, but I think also even with people who had considerable amounts of money with maybe one or two providers, even though there’s that £50,000 guarantee, it has made people realise the benefit - if they’ve got a lot of savings - of spreading it around providers so that, again, you don’t have all your eggs in one basket.

Again I’d re-iterate that for many of us now savings are forever – they’re for now and they’re into our retirement, in a retirement that’s going to be much, much longer than any of us have expected. So I think that has made a lot of people much more risk-averse.

Vox Pop 4 –

Gentleman: Yes we found it, it was opened in 1984, and there was £8 in it and its still in it because I haven’t bothered cashing it in or anything. We are keeping at as a souvenir.

CF: Within the industry at the moment there is a concerted effort to reunite people with forgotten savings, what should people do if they find an old saving certificate or passbook at the back of their draw that they had completely forgotten about?

TM: Go online and look at mylostaccount, which is a completely free and very simple way of reuniting savers and investors with their lost accounts. And it is operated by ourselves – National Savings & Investment – with the banks and building societies. And we know it is working well because last year we reunited saver with £100million, and it had been really successful. We have researched the reaction to the campaign and most of the people say it reminds them to look for old savings and investments, but there is a second group where is reminds them to keep a jolly good record of what they have got in the first place so that they don’t loose it. And of course keeping that record is the start of properly managing your savings and investments anyway.

So go to mylostaccount, it’s simple, and it’s completely free.

CF: Thank you very much Tim.

TM: Thank you.

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