Have you become a covid saver?
Covid, or rather the lockdown designed to counter it, has had some unexpected effects. It has meant serious problems for some people and families, and prompted the government to set up repayment holidays for mortgages, credit card, car and loan repayments.
But there are also some who have become covid savers. Those working at home for the last six months may have had money coming in as usual, but far fewer of the usual costs to spend it on. Not having to go into work can mean saving thousands on train fares, on parking the car and filling it up. We don’t need that business suit, or those work shoes.
But that can be just the beginning. Lockdown has meant little opportunity for what economists call discretionary spending, and the rest of us simply call fun - going out for a drink, a meal, or off on holiday. And if we can’t go out in the evening, we don’t need to buy clothes to go out in.
Even food spending may be reduced. More time at home means more home cooking, and more time to organise shopping lists. Keeping tight control of every penny has never been easier.
With fewer ways to spend, and less temptation to do so, some of us are actually better off. But if you are fortunate enough to be a covid saver, how should you use your lockdown bonus when there is nothing to spend it on?
You can’t just sit back and enjoy the unusual experience of seeing your bank balance steadily rise. You need to find ways to make your unexpected bonus work for you.
Deal with the debt
For most of us, the wisest thing to do when we have some spare cash is dealing with the costly aftermath from the times when we didn’t.
Credit card debt is the easiest kind for most people to fall into. The problem is it can be very difficult to get out of. Interest rates are high and the balance keeps on growing every month until we have paid it all off, even if we cut the card up to ensure we never use it again.
Dealing with debt can be difficult. Using your covid windfall to pay off your card debt has to be your biggest priority. If you have other debts, such as personal loans you might be able to pay them off early, but you should check with your lender if there are penalties.
The really good news? Once your debts are paid off, your covid savings could start mounting up even faster.
Making your covid savings grow
But what should you do with that pile of cash that you are growing?
There’s no point keeping thousands in your current account. The bank will be happy to take the opportunity to make a profit from using your cash, but they will not be sharing it with you.
You need a savings account. These pay interest on your cash.
But you will need to shop around. The Bank of England has cut the bank base rate to help stimulate the economy. This means that most high street banks and building societies are not paying anything like the interest they used to.
While all banks are facing the same financial crunch, they haven’t all reacted in exactly the same way. Some have even stopped accepting new savers altogether. But there are still some good rates if you look for them. Returns of 1% or more can be found, especially if you are prepared to tie your cash up for a while.
But the fact is that any interest is better than none, and by checking the comparison sites you should be able to find an account that at least keeps pace with inflation. Try Money Supermarket, Compare the market or Go Compare.
The worst thing is to simply stick with your old account out of convenience. If it’s not delivering the returns you want any more, then it’s time to switch.