We recently wrote about our New Year campaign that is aimed at helping our customers wake up their finances for 2024.
That’s because our mission at Plum is to maximise wealth for all, which starts with tackling lazy money!
And the reason why we’re so passionate about putting lazy money to work?
Our analysis of the latest Bank of England figures shows that £253bn is still lying dormant in non-interest-bearing UK accounts.
What do we mean by ‘lazy money’?
According to research by Plum, based on the latest Bank of England figures, the amount of money left stagnating in zero-interest accounts has fallen from £268bn to £253bn in the UK over the past year.
However, we believe around 14% of household savings is still sitting in easy access and flexible accounts, where no interest is being earned. That means UK households are currently missing out on annual interest potentially worth in the region of £13bn.
And the problem doesn’t end there!
If your money isn’t being made to work and generate a return, the value of your savings can be eroded over time by inflation.
For example, if you were to deposit £1,000 cash into an account paying 0% interest, the actual spending power of your money could drop to £825.89 after five years (assuming a consistent inflation rate of 3.9%).
Victor Trokoudes, CEO and Plum Founder said:
“While it’s promising that the proportion of savings in zero-interest accounts is falling, a high proportion of hard-earned savings are still earning little to no interest. That means people are missing out on an opportunity to grow their money over time and achieve real-terms increases in their savings as interest rates currently exceed inflation.”
Why is ‘lazy money’ a problem?
When it comes to money, nobody wants to feel like they’re missing out!
If you have your savings tucked away in an FSCS-protected* account then any interest you earn is almost like free money (though you’ll still pay tax).
But recent Plum research revealed that, amongst UK adults, close to 1-in-5 (17%) didn’t know whether their money was earning interest or not.
More worrying still, 44% of respondents we spoke to did not understand the extent to which inflation is eroding the value of their savings. That means they may be less inclined to take action and protect the spending power of their money from inflation.
Victor adds, “Your money shouldn’t just be lying there, it should be working as hard as you do. But without the right wake-up call, it will continue to snooze. That’s why we launched our ‘Wake Up Your Money’ campaign to encourage people to take action.
“Even if we know we should have a plan and be saving for the future, the demands of daily life can leave that feeling like a pipe dream. That’s why apps like Plum, which automate your savings, make this a lot more convenient. So you can focus on living your life today, knowing you’re not neglecting financial planning for the future."
* The Financial Services Compensation Scheme protects consumers when authorised financial firms fail, and can pay compensation of up to £85,000.
Plum’s top tips to wake up your money
Plum is the app that’s designed to help you do more with your money with the help of AI and smart personalisation. If you’d like to wake up your money this year, here are a few ideas to get you started:
1. Build up the habit of saving
The most effective way to save for the long term is to make it a regular habit.
Waiting until you have a lump sum saved, before moving it to a separate account, might mean you’re more tempted to dip into the money. So, setting aside small amounts at regular intervals could be a better approach… But that’s also starting to sound like a lot of effort!
An alternative solution is to use an app like Plum, which can automate the process for you, reducing the amount of time and thought required.
You can use Plum to set aside a fixed amount each week, deposit a lump sum when you first get paid or gamify the process of saving money with options like the 52 Week Challenge or Rainy Days.
In addition, Plum can also analyse your financial data from all your linked banks and credit cards, to arrange deposits on your behalf.
Plum’s algorithm calculates the amounts it automatically sets aside based on your recent transactions and previous trends. And because the amounts are tailored for you, it means you’re never left short when you need the money.
2. Explore alternatives to your bank
Don’t let your bank take your money for granted.
If you’re not being offered a rate of interest that’s close to the Bank of England base, consider shopping around to find a higher rate.
Alternatively, it may be worth looking into a Money Market Fund (MMF).
This type of fund contains low-risk investments that are backed by the UK government. For example, Plum Interest will typically follow the base rate more closely than a traditional savings product.
For customers looking for a way to try and increase the return they can earn on their money and who are comfortable with the associated risk, they may wish to investigate other types of investment options.
Capital at risk if you choose to invest.
3. Take advantage of tax wrappers
Whether you’re saving or investing, each UK adult gets an annual Individual Savings Account (ISA) allowance of up to £20,000 (for the 2023/24 tax year and also frozen for 2024/25 ).
An ISA can provide tax relief on contributions or earnings, though the rules are different for each ISA type:
Contribute up to £20,000 per year and pay no tax on the interest you earn. A Cash ISA can also make a great place to store your emergency fund. Though, to obtain a competitive fixed rate, you may need to forgo the ability to immediately access your cash (without incurring a penalty).
Lifetime ISA (LISA)
Although you can only pay in a maximum of £4,000 per year, and you can only open your LISA before you turn 40, the Government will add a 25% bonus to any money you contribute. You can hold cash or investments within a LISA and withdraw when you buy your first home, so a LISA is particularly suitable if you plan to get on the property ladder. Capital at risk if you invest.
Stocks & Shares ISA
Solely designed for investments, you can use your full annual ISA allowance of £20,000 for a Stocks & Shares ISA. Within this, you won’t pay Capital Gains Tax on any profit you may make when selling investments. However, always remember, the value of your investments can go down as well as up and your capital is at risk if you invest.
This content is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Tax treatment depends on your circumstances and may change in the future. Always do your own research.
You can learn more about ways to wake up your money with Plum by visiting our website.Download Plum