There's no getting away from it – savings rates aren't exactly enticing at the moment. A combination of factors has led to rates being at record low levels, and this means the returns that can be achieved are equally as disappointing. It also means that savers are becoming increasingly disillusioned, and are withdrawing their savings at an alarming rate…
Unplanned withdrawals on the rise
According to research from Prudential, 43% of those with savings and investments have made unplanned withdrawals in the past year, averaging £1,373 each. This cash is often used to cover unplanned expenses, such as household repairs, but some use the money for a spontaneous purchase – not always the best use of a hard-saved pot.
However, a lot of these withdrawals come down to the poor returns currently on offer. According to the survey, 18% of savers admit that they probably wouldn't have taken out the cash if they were getting better returns, while a further 32% said they'd have withdrawn less for the same reason. Unfortunately – but perhaps unsurprisingly – this is leading to buyers' remorse, with 41% of these "savings raiders" saying they regretted some or all of the withdrawals they made.
It appears that, for many, it simply doesn't seem to be worth keeping their cash tied up, with savers often thinking it could be put to far better use elsewhere. The rising cost of living could also have a lot to answer for, as needing to cover everyday costs (such as food shopping) is the main reason why people raided their savings, with 27% of respondents using their funds for this purpose.
Paying for a holiday (21%) was next on the list, followed by unexpected bills (21%), a new car (18%) and home improvements (18%). Luxury purchases (such as a new watch, pair of shoes or designer handbag) tempted 7% of respondents while 5% used the cash for other big ticket items such as a TV, but arguably many wouldn't have opted for these more expensive purchases had they been getting better returns.
Andy Brown, investments expert at Prudential, commented on the findings: "Household budgets are under a lot of pressure so some unplanned withdrawals from savings or investments are inevitable, but raiding these hard-earned savings to fund one-off or impulse luxury purchases, such as holidays, should ideally be avoided.
"Establishing a regular savings habit that's sustainable and having a clear understanding of your long-term savings goals is the best way to maximise returns and help reduce the need to make unplanned withdrawals."
Spend or save?
Despite savings returns being truly lacklustre at present, it's no reason to turn your back on saving altogether. Even putting away small amounts on a regular basis can quickly add up, and that in itself can be a valuable financial buffer against life's emergencies.
You can still find some decent returns if you know where to look, too – check out our best buy tables to get the best deals – and if you'll be tempted to dip into your pot, consider opting for a fixed rate bond that doesn't allow withdrawals. Prudential's research also found that being able to easily access funds drives a lot of unplanned withdrawals, with 22% admitting that penalty-free access to their cash increased the likelihood that they'll raid the accounts.
So, get into the habit of saving and lock it away for a bit, and then you can spend it at a later date – guilt-free!
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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