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More people are putting money aside into easy access savings accounts, but there has also been a rise in consumers using credit cards and overdrafts for short-term borrowing, statistics from UK Finance reveal.
According to the latest Household Finance Update released by UK Finance, an organisation that represents over 250 firms across the banking and finance industry, deposits held in instant access accounts in June 2019 were 2.5% higher than the same month a year ago, while ISA deposits are also up by 0.3%. However, deposits in savings accounts that require notice or where funds are only available on maturity are down by 2.4% year-on-year, despite these types of savings accounts usually offering higher rates. This suggests that savers are keen to have access to their funds and are willing to forego higher rates in order to achieve this.
While easy access accounts continue to offer lower rates than fixed rate accounts, now is a good time for savers to consider this type of product as the chart is highly competitive, with three providers offering the top rate of 1.50%. Cynergy Bank offers this rate, which currently includes a 0.75% bonus for 12 months) on its Online Easy Access Account – Issue 24 that allows unlimited withdrawals. Marcus by Goldman Sachs® also offers this rate, which includes a 0.15% bonus for 12 months, on its Online Savings Account that again allows unlimited withdrawals. Virgin Money pays this rate on two accounts – Double Take E-Saver Issue 10 and Man Utd Double Take E-Saver Issue 5, both of which restrict withdrawals to two per calendar year including closure.
The data released by UK Finance also reveals that short-term borrowing is up year-on-year, with credit card transactions up by 1.1% in June compared to the same month the previous year, while overdraft borrowing has also increased by 1.3% year-on-year. However, borrowing in the forms of personal loans is down by 2.4% year-on-year.
Consumers needing to borrow money should have a plan in place to pay back the money as quickly as possible to avoid the debt increasing due to interest charges. Those looking for a short-term borrowing option could consider 0% purchase credit cards that offer 0% interest rates for purchases for a set time period. The credit card topping the 0% purchase chart at the moment is Barclaycard’s Platinum 27 Month Purchase and Balance Transfer Visa, which has 0% interest for purchases for 27 months. Second in the chart is MBNA Limited’s 0% Transfer and Purchase Credit Card Mastercard, which also offers 0% interest on purchases for 27 months.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “The growth in easy access deposits year-on-year reaffirms the view that savers are being cautious when it comes to keeping their cash accessible. It’s positive to see a rise in deposits and hopefully this means savers are thinking about setting aside more cash in case of emergencies. Typically speaking, consumers should aim for a pot that can cover between three to six months’ worth of essential spending, but not everyone can afford to save each month.
“Consumers are clearly borrowing more on credit cards and overdrafts to cover their short-term spending. It wouldn’t be uncommon to see these methods used to cover the final payment for a mini-break or the expense of a trip abroad, and with a year-on-year rise, it seems that consumers are spending more than in 2018. Cards and overdrafts are so convenient to use, but borrowers need to be careful not to overdo it. Borrowing through personal loans fell, but it isn’t too uncommon to see for June, as consumers may prefer to consolidate their debts towards the start or end of a year. Regardless, there are some attractive rates out there for those seeking an unsecured personal loan today.”
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