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Short-term savings goals continue to be more popular than saving for retirement, a survey from Foresters Friendly Society reveals. As a result, people could not only be jeopardising their retirement, but also missing out on the best savings returns.
The survey findings show that 35% of Brits prioritise saving to fill their emergency pot over any other type of savings, while 29% view saving for their retirement income as top priority, and 26% think saving for a holiday is most important. This means that 61%, the majority of people, are focused mainly on short-term goals.
This short-term thinking is even more pronounced among millennials (those aged 18-34 years old), where only 16% prioritise building up a later-life savings pot. Considering that this group is the most likely to be dependent on their own pension provision – with some help from their workplace pension – it's particularly worrying that only some are thinking about their retirement. The earlier you can start saving for your post-work life, the better.
According to Foresters Friendly Society, the reason for this focus on the short term is a lack of understanding, which is why they're calling for improved finance education especially among younger savers. "There's a lot of talk about economic uncertainty, and we're seeing inflation continue to outpace wage growth, so it's little surprise that people are putting something away for a rainy day," Paul Osborn of Foresters Friendly Society said. "But there's a real worry that this is being done at the expense of their longer-term saving."
It's not just important to save for the long-term, but also to think about how you're saving. The survey highlighted that 34% of respondents use a standard savings account, while 27% opt for cash ISAs and 15% just use their current accounts. In contrast, despite offering the chance for better long-term returns, only 10% have a stocks & shares ISA, while just 9% have a lifetime ISA.
As our own data has previously shown, the return on stocks & shares ISAs stood at 11.75% on average in 2017, while the top cash ISA currently pays 2.15% (the fixed five-year deal from United Bank UK) and the top regular savings account pays 2.55% (the seven-year fixed bond from BLME). This is quite a discrepancy.
Of course, your investment would be at risk in a stocks & shares ISA, with the possibility that you get back less than you put in, and past performance is no indication of the future, but for the long term, the risk could well be worth the bigger reward. Similarly, all lifetime ISAs bar one require investment in the stock market, so could generate high returns as well as a Government bonus, which can be used for the purchase of a first house or retirement.
To understand the risks, read our guide on stocks & shares ISAs or the lifetime ISA. If you'd still rather keep your money in cash, make sure you have the top easy access account for your emergency pot, the best current account for your daily spending and saving, and the top long-term savings account to boot.
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