Interest rates have been low for some time now, which is great for anyone who has a mortgage and other debts, but less attractive for savers.
Until recently, there were a few saving accounts offering around 1.5-2%. However, these are becoming rarer, and in fact many banks have reduced the interest rate on their saving accounts to as low as 0.1%!
There is even speculation at the idea of a negative interest rate – effectively we could end up paying the banks to save our money! Personally I’m not in favour of this at all, and I’m pretty certain it won’t be happening anytime soon, but if you’re considering not saving at all, then you’re missing the whole concept of saving!
I agree there is very little incentive to save these days, but we have to remember that the interest we gain from saving, is not the only reason to save. In fact, it’s only a by-product. However, sadly over time it has overshadowed the main reason, and become the main factor in saving.
Equally, I agree, we should get a return on the money we are effectively lending to the bank to loan to others*, but we must NEVER forget the principle of saving.
The real reason to save
The real reason we save, is to put money aside to ensure we have money for a future expense, whether that be a car, a house, our retirement, our tax bill, an investment opportunity, training, or a holiday (assuming we can go on one…).
Savings are a form of budgeting – making sure we have money for when we need it, yet we should always save, even if we don’t know what we’ll need it for in the future.
For example, I’ve always encouraged anyone who will listen to me to save for a rainy day – a time when sales have decreased due to seasonality, or some other unfortunate event.
The covid lockdown was a rainy day none of us were expecting, but thankfully, whilst no-one could have predicted the impact it has had on our businesses over the last 6 months, those who had savings felt calmer and were able to respond with less anxiety than businesses who had no savings at all.
Those business who had saved, still felt fear over their future like everyone else, but they we’re able to think a little clearer and not hold back on investment. They could pay their wages without anxiously waiting on the furlough grant. They still had to make some tough decisions like every other business has, but those decisions were rational, and not based on fear either.
Therefore, regardless of what happens to the interest rates, I encourage you to keep saving if you can. No-one will suffer if you save, but you will certainly suffer if you don’t save. Because whilst I believe we will get through this current challenge, we can be certain there is another challenge waiting for us in the near future – all we can do is at least hope it’s much kinder to us and our businesses.
*I highly recommend you rent the film ‘It’s a Wonderful Life’ for a great reminder of how a bank uses the money other people save, to lend to others. It’s also a great feel good movie too!
Helen Monaghan is a Chartered Management Accountant, accredited NLP Practitioner & Hypnotherapist, Finance Coach and is both a psychology graduate (The Open University) and an accountancy graduate (The University of Stirling). She is the author of three business books, which beautifully bring together psychology, finance, and tax to empower the reader about money, and is the founder of HM Finance Coaching Ltd, a company that provides financial education and business mindset coaching to small businesses across the UK, in addition to accountancy services for limited companies in Scotland.