As high living costs persist, savers are being urged to make the most of today’s high-interest accounts to set a “strong” savings habit while disposable income dwindles.
Ravi Kumar, savings senior product manager at Gatehouse Bank told Express.co.uk: “We are currently in a high-rate environment, with the Bank of England consecutively raising its base rate over the last year in an effort to tackle inflation.”
While the current financial climate poses a challenge for those paying back loans, Mr Kumar said: “It does have the potential to benefit savers. Higher rates mean higher returns on savings deposits, allowing customers to earn more on their savings.
According to data from Gatehouse Bank’s Savers vs Spenders Report, there has been a promising shift towards a saving mindset among UK adults, with over two-fifths (45 percent) now focused on saving rather than spending.
Mr Kumar said: “Making the most of the current high-rate environment is a good way to do this and set strong saving habits.”
While the Bank of England opted to leave its Base Rate unchanged at 5.25 percent this month following a surprise dip in inflation, savings rates are still averaging at decade-high levels.
According to money comparison site Moneyfacts, average easy access and notice rates hit their highest levels since 2008.
Meanwhile, the average rates on one-year and longer-term fixed bonds and ISAs all stand above five percent for the first time in almost 15 years (November 2008).
Mr Kumar said: “Putting money aside on a regular basis can be challenging, especially during these tough times. However, there has been a promising shift towards saving, with one in 10 changing their mindset over the last 12 months to focus on saving over spending, and 59 percent of people now aim to save more on a monthly basis.
“Within this context, the current high-rate environment presents an opportunity for people to grow their savings. The first step is to assess the rates of different savings products on the market and select a product that ensures the best possible financial return, making sure to also consider what type of account (i.e., fixed term, notice, or easy access) would be more suited.”
Easy access accounts grant customers more flexibility to dip into their pots if needed without penalty, while notice accounts typically pay higher rates of interest but require savers to provide a set amount of notice before withdrawing.
Fixed rate accounts can help add certainty to savings as they enable people to lock in the interest at the time of opening. However, the accounts can come with a few more restrictions, such as higher opening deposit requirements and limits on withdrawals.
Mr Kumar said: “Whether you’re gearing up for a big purchase or something smaller to get started, setting goals is an important part of building up healthy savings habits.
“It is equally important for these goals to be realistic, as unrealistic goals may ultimately feel unachievable and demotivating to save towards.
“Once the right goals have been set, it may be helpful to view your savings as an essential monthly transaction and pay yourself first into a designated savings account on a monthly basis – no matter how small the monthly sum is.”
Mr Kumar added: “This is an important step in building the right habits, as Gatehouse Bank’s research shows that 44 percent of those who class themselves as savers see their savings as an essential outgoing in the same way they consider their rent.”
Mr Kumar works with Gatehouse Bank, which is a Shariah-compliant UK bank that pays an expected profit rate rather than interest.
Mr Kumar said: “The Bank’s savings products are underpinned by its Woodland Saver range of fixed-term deposit and Cash ISA accounts. For every account opened or renewed, Gatehouse plants a tree on behalf of its customers in a certified UK woodland project, planting over 35,000 trees to date.
“The Bank also offers an Easy Access Account and Easy Access Cash ISA, which can both be opened with a minimum deposit of £1. These accounts have been created to boost financial inclusion for younger customers or those with smaller deposits and help them build healthy savings habits.”
Whilst a common misconception is that Islamic finance products are exclusively for those of the Islamic faith, Mr Kumar said they are open to everyone, including those of all or no religions.
He said: “For many, Shariah-compliant banking is viewed as more ethical than traditional banking, as Shariah-compliant banks don’t invest in sectors which could cause harm to society, including alcohol, gambling, tobacco, adult entertainment and the arms industry.
“This aligns with people’s wider social and ethical considerations, making Islamic finance a natural choice for customers who want to enjoy competitive returns on their savings while taking ethical considerations into account.”
