We are all encouraged to save a bit from our income to cater for unforeseen circumstances. These emergencies might come as a health problem, insurance issues, educational fees, and you might add, a global pandemic. The coronavirus pandemic has forced a lot of economies into recession and some others, into dire straits. Many businesses have been forced to shut down due to monetary problems, while others are tittering on the edge of bankruptcy so nowadays it is difficult to know where should you save your money in this world economy. With the rise in inflation and job loss, families have been forced to eat deep into their savings to survive. One would be uncertain about the security of his or her savings, considering the fact that the world is in a crisis.
An advantage of the COVID-19 pandemic is that it has made us better managers of our finances. With many people finances on lockdown, people have been encouraged to save. The UK consumers’ balance sheets, according to the bank of England, have shown a total net improvement of £85bn in terms of cash saved up, and debts paid down. This is a good chance, especially, if you consider that as of January 2020, the collective credit card bill stood at £69.7bn according to UK finance. With the emergence of the lockdown, this lessened to £59.8bn in May. People are getting a lot more interested in saving, though there is no guarantee this trend will continue after the coronavirus pandemic.
From ancient times, saving a part of one’s income has been an assured way to wealth. For many people, savings guarantee financial stability in times of emergencies. The most traditional way to save is to put your money in a bank and watch it grow with interest. Nowadays, interest rates are no longer high. With the instability associated with the economic crisis, you might wonder whether banks are the best way to save and keep your money.
Are banks the best way to save during this pandemic period?
Even with the paycheck coming in as it should, people are still concerned and uncertain about their financial situation and future. There is the underlying fear that their money is not secure in the banks of their choice. Most times, in situations such as these, many banks experience a bank run. The truth remains that banks are still the most effective and fool-proof way of saving your money in the pandemic period.
What is a bank run?
A bank run happens when customers believe that their bank will run out of money, so they withdraw all of their cash. It is dangerous to the wellbeing of the bank as it loses its cash reserves.
Are banks the best place for your money to be?
The answer to this question is yes. Most banks are insured such that a customer would not lose much should the bank experience failure. There is also no guarantee that funds kept in the home are safe from burglars and fire hazards. You should only withdraw funds from your account only if you need it. There is no need to panic as changes in the banking system are due to the need to reduce the spread of the virus rather than an indication of its health. There are, however, some alternatives to banks where you can choose to keep your funds if you consider them.
Some alternatives to traditional banks
When you save with a bank, you are guaranteed an interest rate payable after an agreed time period. These rates are notoriously low, though, for a fixed deposit account, one of the many saving options there are, you are given a higher interest rate than a savings account until the given maturity date. This has prompted many to look for alternatives to the standard traditional banking system. Some of these alternatives are;
High-Yield online savings Accounts
You are guaranteed a higher interest rate with online banks than the traditional banks. The downside of these banks is that they do not offer full banking services like checking accounts or ATM access. Some of them do not also provide loan opportunities. If you are looking only to save, an online bank, like Aspen Woolf, is your best bet.
Certificates of Deposit with online savings banks
You are paid a higher interest rate with CDs than savings accounts, but you might not want to tie up your funds in CDs. Using the CD ladder, a strategy where you use multiple CDs with varying maturities, you tend to bypass this downside. CDs are a way of ensuring you earn a high-interest rate even as your money is still liquid.
High-Yield Checking Accounts
Many checking accounts offer up to 2% annual percentage yield, which is far better than what is offered by the traditional banks. To obtain higher interest rates, customers, generally, have to meet some specific requirements like minimum balance or establishing direct deposit. Failure to meet these demands will mean that the consumer will be charged the banks’ standard lower rate for checking accounts.
Peer-to-Peer lending services
There is a bit of risk involved with peer-to-peer lending. Here, you are investing in personal loans that are issued to consumers. The risk is in the possibility that the loans can default. Annually, the average return of P2P lending is estimated to be about 4% to 6%.
Real estate investments trusts
Real estate can be used as a form of high-yield savings, though there are only a few persons that think of using it in this manner. Real estate investments trusts are like mutual funds that you use in investing in real estate. It is primarily commercial real estate, like office buildings, warehouses, et cetera. REITs pay dividends, and over the years, it has been on the order of 10% annually.
What is the importance of online reviews in choosing your savings medium?
The reviews on the bank services offered by both online banks and traditional banks, like Shawbrook Bank, are important in selecting your where your money should be. These reviews would portray the extent of the bank’s reliability and trustworthiness. You can find many of these banks on the BritainReviews site and go through the reviews of their various customers. You must read reviews as it informs your decision in picking the best banking prospect for you.
It’s understandable if you are sceptical about the safety of your savings, giving the economic uncertainty that the country is currently experiencing. Nevertheless, with most banks in the UK, your savings are safe. You may, however, need to weigh the opinions of bank customers in the form of reviews to know which bank you should trust with your money.