Paragon’s savings director Derek Sprawling reflects on the key trends to impact the savings landscape so far in 2021

While January 2021 is now behind us, the third UK national lockdown looks very much set to continue. As a result, many of us are gearing up for more weeks spent at home, and this is certainly set to impact the way we save.

One obvious way to draw some initials predictions for what this national lockdown has in store is to look at the impact of the previous ones. Bank of England data shows that total household deposits stand at £1.6 trillion and grew by a staggering £124 billion last year¹. In 2019, deposits increased by less than £50 billion over the same time period, marking a 148% increase in a single year². This upward trajectory is likely to continue throughout this third lockdown.

The festive restrictions also had a big impact on UK savers. I think most of us will agree that the tiered lockdown restrictions made for an unconventional Christmas, which was reflected heavily in people’s spending habits during what is usually the most expensive time of the year.

To get the full picture, we surveyed more than 2,600 Paragon customers to find out how they had spent the festive period. Our survey found that four in ten customers spent less money than in 2019.

Three quarters of people who scaled back plans named the pandemic restrictions as the main reason for having a cheaper Christmas. Nearly one in four said they wanted to focus on smaller, thoughtful gifts for loved ones, while 43% of savers agreed that they saved money by spending less in the run-up to Christmas due to the lack of opportunity for festive celebrations in December.

Interestingly, more than one in three (37%) gifted more cash to loved ones than usual, despite cutting back on overall spend. This is reflective of the current economic climate, with many choosing to provide valuable financial support instead of choosing ‘non-essential’ presents.

Rainy day fund is top savings priority post-pandemic

In the survey, we also asked our customers about their long-term plans for any money saved during the pandemic.

Among savers, 29% wanted to prioritise topping up their emergency fund with any savings made during the pandemic, while 28% of savers were planning to lock money away in a fixed rate product. Those results were comparable to savers who planned on spending pandemic savings on big expenditures, with 29% planning to go away on holiday and 27% committing some funds to home improvements.

A quarter of savers also had generous plans for their pandemic funds, with 15% planning to gift some of the money to a loved one and one in ten committing to a charity donation.

Because building an emergency fund is such an important priority for savers at the moment, many have boosted their easy access accounts with any funds saved during the pandemic. However, a growing number of savers are receiving little return on their money, particularly those saving in accounts linked to their current account, which often offer a rate of 0.01% or even less.

According to CACI data³, easy access balances earning 0.1% or less steadily increased throughout 2020, growing from 19% in January to a staggering 72% in November. In November 2019, account balances earning a rate of 0.1% accounted for only 6% of total easy access balances, which marks a twelve-fold increase in a year.

Moving money from the large high street banks to a non-linked account could be the best options for people receiving little to no interest on their balances. Alternatively, splitting savings between a diverse range of accounts including fixed rates and easy access is another way to ensure access to rainy day funds while also receiving a competitive rate.