LOW INTEREST RATES IMPACT ON SAVINGS - LEGAL & GENERAL MONEYMOOD SURVEY.
09 August 2013
MoneyMood research has revealed that, while low interest rates set by the Bank of England (BoE) may be good for borrowers and inverstors, the prolonged period of low interest rates appears to be having a major impact on attitudes to Saving in the UK.
In the Mood to Save …
The ‘Mood to Save’ is falling – our July survey shows 56% of people are in the Mood to Save, down from 69% in January.
This is lower than the level recorded when the survey started back in 2005 (59%) and well below the level 4 years ago (August 2010 - 58%) before the BoE cut the base rate to its lowest level ever at 0.5%.
MoneyMood Survey ® “Are you in the mood to save?” - to view the chart showing the fall in the Mood to Save please click on the link on the right at the top of this page.
Inflation taking a toll on savers …
Savers are increasingly becoming aware that the combination of low interest rates and high inflation reduces the value of their savings and hits income for those who depend on their savings to provide extra cash.
Since the BoE started cutting the base rate the ‘typical’ savings rate has plummeted.
Our MoneyMood research shows 7 out of 10 households (66%) expect the value of their savings to fall again over the next 12 months.
Only 1 in 10 (12%) think that their savings are likely to grow faster than inflation over the next 12 months.
MoneyMood Survey ® “How well do you expect your savings to keep up with inflation?” - to view the chart showing the impact of low interest rates over 12 months please click on the link on the right at the top of this page.
Most are saving in low interest accounts…
Across the nation we are saving, but the majority of our households appear to be relying on saving in ways that pay low levels of interest with little chance of keeping up with inflation over the long term.
Our figures show the lion’s share of savings is held in cash savings such as Deposit/Savings Accounts paying only around 1% interest. These include Bank and Building Society Deposit Accounts, National Savings and Premium Bonds and Post Office savings.
The second most popular savings account is a Cash ISA with 47% of households saying they have some savings here. Yet Cash ISA savings rates have fallen to 1.7% or less according to Moneyfacts*
MoneyMoodSurvey ® Do you have any of these types of savings?- to view the chart showing the breakdown of saving by product type please click on the link on the right at the top of this page.
NOTE * - February 2013 – ‘the average interest rate for a cash ISA is just 1.74% vs. 2.55% a year ago.’
People will either have to save more or look to save in different ways, or both to combat inflation.
Commenting on these findings Adrian Boulding, Pensions Strategy Director at Legal & General said; “The really bad news is that there is currently no light at the end of the tunnel. The Bank of England has said it will not raise the base rate of interest before unemployment falls to 7%, which it currently expects it will not reach until 2016.”
“Savers are going to be made to subsidise consumers for another three years.”
“If money is earning little or no interest you should try and make it work harder to avoid erosion by inflation.
The most consistent hedge against inflation over the long term is stocks and shares, although that means you must be prepared to take on some additional risk.”
However, only 16% of households say they have a Stocks and Shares ISA with half that many (8%) saving in an Investment Bond.
So it would seem the vast majority of households could benefit from a boost to their savings.
For many the first option may be to consider putting more savings into a Stocks and Shares ISA provided they don’t need to get hold of it at short notice.
Two years ago the Government allowed people to convert Cash ISAs to Stocks and Shares ISAs.
Adrian said “A transfer of some savings into a Stocks and Shares ISA could give them a turbo boost, benefitting from both dividends and the prospect of capital gains.”
MoneyMood Survey® What are we saving for?
In January we asked people what they were saving for.
Saving for the unexpected events in life, putting money aside for a holiday and paying household bills are the top reasons for medium to long term saving.
The top five reasons for saving this year are:
- Saving for a rainy day = 71% - (up slightly - 66% in January 2012)
- Saving for a holiday = 62% - (up slightly - 57% in 2012)
- Savings to pay household bills = 57% - (49% in 2012)
- For decorating/home improvements = 52% - (50% in January 2012)
- Saving for a leisure pursuit = 43% - (up from 33% in 2012)
‘Saving in case I lose my job’ showed the biggest increase vs. January last year – at 40% (up from 29% in January 2012) with more people giving it as a reason for saving.
MoneyMood Survey® What are we saving for? - to view the chart showing the breakdown of saving by reason please click on the link on the right at the top of this page.
Notes to editors
SURVEY – METHODOLOGY
Research for the Legal & General MoneyMood Survey was carried out by TNS Omnibus.
Telephone interviews were conducted among a nationally representative sample (in GB) of around 1,000 adults (age 18+) between January 2005 and 19-21 July 2013.
The information contained in this press release is intended solely for journalists and should not be relied upon by private investors or any other persons to make financial decisions.
THE LEGAL & GENERAL MoneyMood Survey is registered by Legal & General plc).
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