During the Covid-19 lockdown UK households have been saving a lot more cash than normal. Bank of England statistics show that deposit balances had an average monthly increase of £53 Billion between March and May. As we slowly go back to normality this figure dropped to an extra £16 Billion in June. An additional £175 billion of deposits with banks since March, more than the cumulative total in most years.
This increase in savings can partly be attributed to the lack of things to spend money on. Lockdown forced people to stop normal spending on entertainment and curtailed impulse purchases, leaving a bit more cash around.
Whilst we can go out spending again, the crisis will have impacted the psychology of many with the inability to spend being coupled with a change of willingness to spend.
Whilst this behaviour is understandable in uncertain times it is also a risk to longer term investment plans. What we are seeing is not a market panic and the subsequent hoarding of cash, rather people are looking more to the future. There has been a lot of talk about a tough road ahead and the prospect of job losses causing us to worry about not having enough in the future.
Whilst it is sensible to have a bit of cash on one side it is also sensible to look to get the best out of the extra cash you find yourself with. An immediate reaction could have been stopping regular payments into pensions or investments. The danger is that these contributions do not resume, and the real value of the cash diminishes over the longer term.
Regularly reviewing your circumstances and looking at long term goals, with professional advice means that the extra cash accumulated will have real value in the future.