Finance Matters

Posts Tagged ‘savings’

A study by Santander, one of the world’s largest banks, has revealed that people are funding Christmas this year by dipping into their savings.

High unemployment, inflation at around 5 per cent and the threat of another recession are all putting pressure on people’s pockets and causing them to use their savings to pay for their Christmas celebrations.

According to Santander’s research, a third of Brits will withdraw an average of £391 from their savings accounts this month and around three quarters of this will be used to buy gifts.

Matt Hall, head of savings at Santander, said: “With many people dipping into their savings to cover the cost of presents as well as increased winter bills, this year looks set to make a significant dent in the nation’s savings.”

Santander also found that people are having to use savings to pay their heating bills this winter.

An annual survey by insurer LV found that parents will spend a total of £2.4 billion on Christmas presents for their children this year.

Children between the ages of seven and 11 will have the most spent on them, with parents expected to spend around £220 on each child.

Across all age groups, parents will spend an average of £178 on presents for each child, £10 more than last year’s average.

Yesterday, David Cameron’s adviser on childhood, Reg Bailey, called for parents to spend less on presents for their children.

Mr Bailey warned that commercialisation is ruining Christmas and said that parents should not get into debt in order to buy expensive gifts as children would benefit from having fewer possessions.

Mr Bailey is the author of a Government-commissioned report on the commercialisation and sexualisation of childhood, which was published earlier this year.

The Post Office has extended its promise to match the Bank of England Base Rate percentage changes on its savings products, until 1 January 2013.

The promise, which was originally planned to run until 31 March 2012, covers the Post Office’s Instant Saver, Reward Saver, Cash ISA and Easy Saver accounts.

The Post Office has also announced unlimited free withdrawals from Instant Saver accounts with effect from today, replacing the previous limit of six free withdrawals a year.

There was previously a £1 charge for each subsequent withdrawal.

Richard Norman, Post Office Director of Savings and Investments said: “We want to help make saving easier, more flexible and more rewarding.

“We understand that sometimes you need to dip into your savings for one reason or another and that’s why we have introduced unlimited free withdrawal, to help you access your money in a way that suits you.”

Santander has also boosted its savings range with the launch of a new range of ISAs in a limited offer which is available from branches and over the phone.

The new fixed rate ISAs offer rates of up to 3.5 per cent and are
available in one and two-year formats.

Savers can transfer existing ISA funds into the new products at the time of opening.

A minimum initial investment of £500 is required and the maximum investment per annum is £14,000.

Matt Hall, head of savings at Santander, said: “Fixed rate Isas offer certainty of return with the advantage of earning the interest tax free and therefore continue to prove popular with savers looking to lock in their cash.”

Santander has also launched a new, two-year fixed rate bond which offers 3.55 per cent AER to customers who deposit more than £25,000.

Customers who deposit more than £5000 will receive 3.50 per cent AER and those who deposit more than £500 will receive 3.20 per cent AER.

New data from the Bank of England suggests that house owners are focusing on repaying their mortgages as part of their efforts to reduce debt.

Consumers are concerned about the state of the economy and their incomes are under pressure from pay freezes, rising unemployment and high levels of inflation.

These pressures, together with falling house prices, are contributing to a trend for households to cut spending and reduce their borrowings.

A record £9.1 billion of mortgage repayments were made in the second quarter of year, representing 3.5% of households’ post-tax income.

The amount of money owned on mortgages has fallen by £92.9 billion since the 2008 credit crunch.

In contrast, during periods when house prices are rising, consumers tend to withdraw equity from their homes.

In late 2006, when the property market was booming, mortgage equity withdrawal represented 5.6% of households’ post-tax income.

Alongside general economic gloom, the current low level of return on savings also means householders are less likely to take equity out of their property.

With the Bank of England keeping its base rate at a historic 0.5% low, many people are using any spare cash they may have to reduce their mortgages rather than saving it.

However, the latest figures from the Building Societies Association show that mortgage lending by building societies and other mutual societies increased by 20% last month to £2.3 billion.

Savings balances also grew, to £0.4 billion in October, compared with an outflow of £1.1 billion in October 2010.

Adrian Coles, Director-General of the Building Societies Association, said: “This improvement is likely to be because of the cash savings accounts on offer at mutuals which provide security that equity investments cannot in these uncertain times.”

Santander has launched an innovative new product which allows customers to receive £1,000 interest almost immediately, on an investment of £12,000.

The Upfront Interest Bond has a minimum three-year term and a minimum initial deposit of £10,000 is required.

It is only available to Santander current account customers and interest on the bond will be paid into the account within six weeks of the date the bond was opened.

It offers an interest rate of 3.36 per cent gross AER and although the offer of three years’ worth of interest up front is tempting, savers who are willing to wait for their interest could find a higher rate of elsewhere.

No withdrawals can be made during the life of the bond, so once the interest has paid, the money is tied-up for the three-year term.

Earlier this month Santander launched its inflation-linked Issue 7 Bond, with a minimum deposit of £500 and a maximum of £2 million.

The bond is linked to the retail price index (RPI), so that any increase in RPI inflation will trigger an equivalent increase in returns for the bond, preventing the investment being eroded by inflation.

If the RPI increases by 20 per cent over the six-year term of the bond, the investor would receive 20 per cent on top of their initial investment.

However, if the RPI falls the bond doesn’t look quite as attractive as it offers a minimum interest rate of 10 per cent before tax, which would mean the investor would receive just £1,000 interest on an initial deposit of £10,000, equating to 1.6 per cent a year.

The six-year term of the bond could also be off-putting for some investors, as no withdrawals are allowed during this period.

New figures from financial research company Defaqto reveal that UK savers are pessimistic about their pensions and many are failing to make adequate provision for their retirement.

Dafaqto reports that the proportion of savers who fear that their needs won’t be adequately met when they retire has grown 6 per cent to 44 per cent.

Just 11 per cent of those surveyed said they were confident that their pension would enable them to have a comfortable retirement compared with 16 per cent previously.

The survey also highlighted the failure of younger people to make adequate provision for their old age, with 35 per cent of the 25 to 34 age group, and just 9 per cent of those aged between 18 and 24, saying they had a pension in place.

Andy Leggett, Defaqcto’s Insight analyst for wealth management, said: “It is important for people to plan for their financial future to ensure that their and their dependents’ needs will be met.

“The later you leave it, the more of an uphill battle you face.”

The Prudential today revealed that many older couples are failing to plan for their joint retirement and in fact many of them are hiding savings from their partners.

New research by the financial services company reveals that 15 per cent of people over the age of 40 are hiding savings, either as a security measure or because they don’t trust their partner’s ability to make sensible financial decisions.

In total the Pru estimates that 4.5 million people aged over 40 have a total of £4.6 billion in savings accounts that their partners know nothing about.

The company warns that much of this money is in accounts offering a very low rate of interest and suggests that savings should be regularly reviewed to ensure that they are attracting the best possible return.