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Cutting spending is only the first step in protecting savings pots 

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In his latest market update Derek Sprawling, Paragon Bank's Savings Director, discusses how savers are responding to increases to the cost-of-living, and how cutting back on spending is only the first step they should take to help build their savings pots.

As autumn approached and economic concerns continued to dominate news headlines, savers started to act.

After months of lacklustre growth, savings deposits started to rise and by the end of September they reached £8.1 billion – the highest amount recorded by the Bank of England’s (BoE) Money and Credit report since June 2021.

Though the data shows that people are taking a proactive approach to putting money aside, it also highlighted how savers are not doing all they could be to maximise their savings returns.  

Whilst the average quoted interest rate on 1 Year Fixed Rates increased from 1.48% to 2.15% in September, this was still well below what was available to savers looking beyond the high street.

As September began, challenger banks were offering rates of over 3% on 1 Year Fixed-Rate non-ISA accounts, rising to over 4% at the start of November.

The lesson savers should keep in mind is that cutting spending is only the start of building their saving and not the end.

Through research and investing time in finding the product that best suits their needs, and by looking beyond the high street, savers could today be seeing the benefit of higher savings rates and improved returns on their nest egg.

While September’s savings deposits data came in the same month as a rise to the base rate and the unveiling, and then unravelling, of the ‘mini-budget’, it was not the first indication that savers were changing their approach to their spending.  

Research, published by Paragon Bank in June, had shown that savers had already started to cut back on spending to help meet the costs of rising prices.

Over four in 10 savers were found to feeling worse off financially than the year before, and 80% were cutting back on their energy use – alongside cuts to socialising, providing financial support to family members, and delays to big purchases.

These changes in habits showed how savers were already starting to prepare for a challenging autumn and winter, with anticipated rises to energy and food prices starting to take hold.

This trend has continued with households planning to rein in Christmas to create necessary financial headroom to pay for essentials.

While savers are unable to take advantage of improved interest rates to help pay for this winter, it does provide a powerful example of why it is never too early to start preparing for next year.

If savers were to lock their savings pots into 1 Year Fixed-Rate non-ISA accounts on the currently available interest rates they would be able to a see their value grow across the year – providing a worthwhile return at a time when it may be needed most.

With uncertainty over how much further rates can rise, some savers may be tempted to wait and see how high rates will rise before they lock their savings into to a fixed-rate product.

Such a delay might seem sensible, but it comes with its own risks. If savers wait too long, they may instead start to see rates fall, and while they delay the decision their savings will be missing out on the returns they could be earning from already strong rates.

Cutting back on spending to help pay for essentials comes with difficult choices, but the action taken deserves to be rewarded with strong returns – and I urge savers to make the most of what is available to them so that they receive the benefit of taking a proactive approach.