The fear of catching Covid 19 has brought profound lifestyle changes, and for many the pandemic has brought financial challenges. Yet, with society in crisis mode, it may be that not everyone shares the same financial story during the pandemic.
Sadly, some people have faced the difficulty of redundancy, unexpected job changes and financial strain in the past months. But for others, work or retirement has carried on: whilst there may have been personal challenges, salaries and income have stayed the same. For these people Covid has led to spending less and saving more.
The reality is that, beyond paying essential household bills, those who would normally have spare cash for leisure activities have had their options for spending it severely limited by the pandemic. Once the initial lockdown was lifted, holidaying abroad became logistically complicated, and even dining out became less appealing. Many people have not wanted to sit in the audience of a theatre, a cinema or a sports ground. Those usual habits of leisure spending have thus changed dramatically. Whilst the unavailability of leisure activities may have taken its toll emotionally, for those who have been able to continue working, or are retired and with a secure pension income, this situation has meant they have spent less, and saved cash. This situation is likely to continue in the coming months.
If you are one of those people, the question is what you do with that spare money and do you want for it to stay sat in a cash account, especially while interest rates are historically low? For some people, keeping extra cash easily accessible in these uncertain times is the right thing to do. Irrespective of the low interest being paid on cash savings, ensuring overall financial security should always be a priority. But for those who are financially secure, there are alternatives to consider.
Our suggestions are not recommendations, and you should explore all the options and, if appropriate, seek independent financial advice before making any decisions.
Whilst you may not want to spend your money right now, it may be that the idea of a new car or a luxurious holiday is a good focus for the future. If you have plans for the money within the next five years, then keeping your cash out of investments is a good idea. Many savings accounts that require notice before you can withdraw the money typically offer higher interest rates. At the moment these accounts are offering rates of typically less than 1%. If these rates don’t sound appealing, you could consider putting some of your money into Premium Bonds*. Whilst no interest will be paid on the money held, and there are no guaranteed returns, each £25 pound held with National Savings & Investments is entered into a monthly draw with tax-free winning prizes ranging from £25 to £1million. Premium Bonds are considered to be fun, however it should be remembered that with no interest being paid, money held in the draw is not keeping up with the rate of inflation.
You can choose to bolster your existing savings and investment portfolio by simply topping up your portfolio. This can be straightforward to do, and your adviser can help you. If you are saving into a personal pension, topping up your pension saving plan is also worth considering.
Alternatively, savings made during the pandemic could provide you with the opportunity to break away from stricter investment planning, and enable you to invest into a sector or industry that you feel passionate about.
One example of this that we have seen is the increase in the number of people wanting to invest in green or ethical funds which have a very strict criteria controlling what businesses the fund can and can’t invest in to. This very clear investment brief suits people with a keen environmental ethos as well as those who object to particular industry sectors, such as firearms or the adult industry.
Investing into a chosen industry or sector doesn’t mean taking unnecessary investment risk. Your financial adviser will discuss with you your investment criteria and talk you through the range of options available. They will help you select the most appropriate funds that fit your attitude towards taking investment risk and guide you towards the most appropriate decisions.
If you are enjoying your retirement years in financial security and comfort, then this may be an opportunity to support younger members of your family in a meaningful way. Funding university education, buying a first home or even affording to save in to a pension are all challenges young people face, and a cash gift or an investment for a child or young person can be life-changing.
If you are in retirement and considering making cash gifts, and you think that your total estate will exceed £325,000 (£650,000 for married couples)* when you die, then it is worth discussing Inheritance Tax (IHT) with a financial adviser. Inheritance tax is paid at a rate of 40% on any money which exceeds your IHT allowance when you die. Your financial adviser will guide you on how to gift money tax efficiently to your loved ones and help you to record these gifts correctly. As a general rule, you can give away £3,000 worth of cash gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’. This is in addition to other allowable gifts for occasions such as a birthday, Christmas or a wedding. Your financial adviser can assist you with Inheritance Tax planning and the use of Trusts, but can not provide advice on any other personal tax matters.
Gifting an investment to a child is not complicated, and there is a range of ways you can do this. Popular choices include opening a pension for a child, which would be invested over their lifetime and be paid out when they reach age 55 at the earliest. You can also open a Junior ISA for a child under the age of 16. A junior ISA allows you to both invest and save for a child under one account wrapper. This is often considered to be a good way to save for future higher education costs. Your financial adviser can discuss saving and investing for a child and help you to make the right choices.
If you would like to speak to a financial adviser about any of the subjects touched on in this article, then please give Furnley House a call on 0116 269 6311 or email email@example.com
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
Past performance is not a reliable indicator of future performance.
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