Paragon’s Savings Director Derek Sprawling looks back at 2020 and considers some of the biggest trends to impact the world of personal finance in the last 12 months.

I think it’s fair to say that most of us are glad to see the back of 2020. The ongoing Covid-19 pandemic has had a profound impact on many aspects of our lives, and this includes our finances.

While we hope 2021 will bring better times and a light at the end of the tunnel, this January gives us the opportunity to reflect on the most defining moments of 2020 in the personal finance space.

The year we saved money at record speed

For those of us that were lucky enough to keep our source of income in 2020, it was a ground-breaking year for savings. Brits not only put billions of pounds’ worth of pandemic savings aside, they also cleared debt at record pace – £21.3 billion’s worth of consumer credit was repaid between January and November 2020¹.

Bank of England data shows that total household deposits now stand at £1.6 trillion and grew by a staggering £124 billion between January and November 2020. In 2019, deposits increased by less than £50 billion over the same time period, marking a 148% increase in a single year².

CACI³, which provides data from more than 30 saving providers, confirmed that the savings market accounts for a significant portion of this growth, with a 5.99% increase in total balances noted between January and September 2020, compared to 2.78% last year⁴.

Easy access balance boost

Last year was a difficult year for the market, with tough conditions and a historically low Bank of England base rate driving rates down. Despite low rates, many savers pumped their pandemic savings into easy access accounts where they could access ‘rainy day’ funds easily if they needed to.

Between January and September 2020, CACI data shows that easy access balance growth tripled compared to the same period in 2019⁵. Instant access non-ISA stock grew by 10.3%, while it increased by only 3.6% the year before.

There is also evidence that savers have given in to inertia. CACI’s analysis shows that 56% of all easy access balances earn a rate of 0.1% or below, amounting to a total balance of £313 billion⁶. This means that most easy access balances are receiving at most just over half of the average interest rate currently paid on an easy access account of 0.19%⁷.

The biggest market disruption in years

In September, we witnessed the biggest disruptions the market has seen in recent years. To support its coronavirus efforts, the Government-backed savings provider was tasked with increasing its net savings target from £7bn to £35 billion, which it achieved through table-topping rates. When that target was reached, we saw it reduce its best-buy rates to just 0.01%. This led to billions of pounds’ worth of deposits flooding back out to the private sector at an unprecedented rate. In November alone, £6.2bn of net withdrawals took place from NS&I, which represents an exodus of potentially hundreds of thousands of savers.

Anxieties around money reached fever pitch

Despite some Brits sitting on more cash than usual, money anxieties dominated the pandemic for many. In a survey of 2,000 Brits, we found that more than a quarter of people felt their levels of money-related stress had increased during lockdown. One in three were anxious about money – they were twice more likely to feel anxiety about their finances than they were to be content⁸.

Many reported sleep disruptions, as well as arguments with loved ones and distractions at work as a result of financial anxiety, with many also keeping secrets from loved ones. Amongst the most common money worries were household bills, making ends meet and how much should be saved in a savings account each month. Another leading anxiety was how to manage a change in circumstance, with more than a third of people surveyed currently worried about losing their income.

A Christmas spent in tiers

It’s impossible to reflect on the year without mentioning Christmas. As the second wave continued to gain momentum, Christmas restrictions were tightened and many people had to dial down plans or cancel them altogether.

Based on data provided by our savers, it looks like many opted to reduce Christmas spending in 2020 – which is no surprise considering the current economic climate. Bank of England data also shows that household deposits increased in the penultimate month of the year, with people putting £17.6 billion aside, giving November the second highest household deposit figure for any month this year. This was no doubt due to the second lockdown and impacted by NS&I withdrawals, but also might be early indication that many prioritised savings over a lavish Christmas.

As we all gear up for a January spent in lockdown, it will be interesting to see how the restrictions, combined with good intentions synonymous with the New Year, will impact people’s saving habits. It will be equally intriguing to note how those habits change as we eventually return to normality, as people who are lucky enough to end lockdown with a little more cash than usual consider whether to spend or save it.

_{1 Bank of England data – January 2020 – November 2020
2 Bank of England data – January 2020 – November 2020
3 CACI produce an analysis of deposit stock from the main deposit banks providing data from more than 30 providers. It allows us to focus on savings accounts, by combining all account types and both ISAs and non-ISAs.
4 CACI’s Current Account & Savings Database, as of end of September 2020
5 CACI’s Current Account & Savings Database, as of end of September 2020
6 CACI’s Current Account & Savings Database, as of end of September 2020
7 Moneyfacts data – 1st December 2020
8 Nationally representative survey of 2,000 adults, October 2020 – conducted by Paragon Bank}