This December, Paragon’s Savings Director Derek Sprawling shares his views on the latest developments in the savings market
With Christmas around the corner, we now have clarity about applicable lockdown measures during the festive period and restrictions around seeing loved ones, which will be a relief to many. However, data examining the potential impact of the pandemic on festive spending still paints a conflicted picture.
A number of studies have predicted that Christmas spending is set to drop this year, with Finder estimating a 10% reduction. This will of course be driven by economic insecurity, which is driving Brits to top up their rainy day funds this year instead of splashing out on lavish gifts. However, other studies point to people making up for what has been a tough year with a bigger, more expensive Christmas than usual, with data from American Express predicting an 11% increase in money spent on Christmas gifts this year compared to last.
It will be interesting to see not only how much people choose to spend this year but also where the money is spent, with an enormous amount of Christmas shopping predicted to be made online away from the high street. This doesn’t just stop at gifts - YouGov research shows that 39% of Brits are planning to do their food shopping online this festive season1, with Waitrose seeing a 143% uplift in Christmas delivery bookings.
The conflicting data around Christmas spending perhaps paints the picture of a polarised Britain, with many sitting on more cash than usual thanks to lockdown savings while others face a tough winter, with more time on furlough and redundancies in the picture.
Bank of England data shows that total household deposits now stand at £1.5 trillion and have grown by £106 billion between January and October 2020, a 240% increase on the year before. On top of this, savers piled £41bn of new savings into NS&I during the same period, which means households had over £146bn of new savings to potentially spend 2.
CACI3, which provides data from more than 30 saving providers, confirmed that the savings market accounts for a large chunk of this growth, with a 5.99% increase in total balances noted between January and September 2020, compared to 2.78% last year4. We are also seeing Brits continue to add to easy access accounts, despite rates on these falling considerably. 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 £313million5. Looking at account volume paints an even starker picture - 70% of all easy access accounts (non-ISA) now earn a rate of 0.1% or less, compared to only 39.5% in January6.
Despite a high number of Brits sitting on more cash than usual, money anxieties are certainly on the rise. A Paragon survey, which looked at the toll financial stress is taking on the nation, found that more than a quarter of Brits felt money-related stress had increased as a result of the pandemic. One in three were anxious about money and were twice more likely to feel anxiety about their finances than they were to be content7. Many reported sleep disruptions, as well as arguments with loved ones and distractions at work as a result of financial anxiety. 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.
This data reinforces that the pandemic is impacting people’s finances in very different ways. However, maintaining financial security during shaky economic times will be a priority for many, who will be focused on using lockdown savings to build a buffer during these uncertain times.
1 Research published by The Grocer, 30th October 2020
2 Bank of England data
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; looks at volume of accounts
7 Nationally representative survey of 2,000 adults, October 2020