Would Redundancy Finish Your Finances?
As fears grow for the economy -- and UK employment -- Laura Starkey explains how you could stay solvent, even if you had to stop working.
Anyone hoping for a quick British bounce-back from the credit crunch might have found their faith dented this week.
In their latest report, the Office for National Statistics (ONS) revealed that unemployment rose by more than 14,000 in the first quarter of 2008.
Adding to the gloom, economists have warned that, while employment is still high, the number of people seeking work is beginning to outstrip the amount of available jobs.
And anxiety about house prices and the slowdown in property sales could also fuel concerns about unemployment. On Monday, the Royal Institute of Chartered Surveyors (RICS) predicted that the number of homes sold during 2008 will be 40% lower than in 2007.
If the effects of plummeting property sales and sliding house prices hit the high street, businesses will suffer. Should that situation arise, job losses may not be far behind.
Yet even more worryingly, alarmingly few Brits are prepared for the kind of rainy day that redundancy, sudden illness or an unexpected job loss might bring.
We've Lost The Savings Habit
While a minority remain steadfast savers, few Brits these days are committed to building up a protective `cash cushion' for emergencies.
The latest Wealth and Assets Survey by the ONS found that 39% of respondents would rather spend now than save for retirement. It also revealed that over 30% of adults -- around 14 million -- have no savings or investments.
While belt-tightening is partly to blame, with 37% of people claiming they're unable to save at the moment, too many of us are treading the savings tightrope. By putting nothing aside now, we could be setting ourselves up for a hefty fall later.
According to research by Combined Insurance, half the population could survive financially for just 17 days if they suffered an unexpected loss of income.
And while I'm not suggesting that we're likely to see unemployment swell to that sort of level, I do think it's incredibly scary that so many of us might struggle to cope in a crisis.
So, What Can You Do?
Here at The Fool, we've always believed it's wise to have a rainy day fund of at least 3 months' salary set aside, in case of emergencies.
Right now, I'd say it's even more crucial to have that behind you -- and to keep it growing if you can.
If you have money put by and can continue adding to your savings pot, the best thing to do is make sure that you've got your cash stashed somewhere smart.
Here, I've rounded up three top savings accounts that offer great rates for savers who have already used up their full £3,600 cash ISA allowance.
Interest Rate (AER)
Min. / Max. Deposit
Fixed rate bond
£1000 / £2,000,000
Optimum AER paid for holding deposit for 1 year. No additional deposits or withdrawals allowed during the term of the account.
|Birmingham Midshires eSaver Account|
Internet-operated, no-notice savings account
£1 / £5,000,000
Unlimited transactions with no loss of interest.
Internet-operated, no-notice savings account
£1000 / £1,000,000
Rate guaranteed to stay 0.3% above base rate until 01/02/2012. Unlimited withdrawals with no loss of interest, as long as account balance is £1000+.
It's worth remembering that, although the Icesave Fixed Rate Savings Account offers a market-beating rate, you won't be able to access any cash you deposit until twelve months have passed.
So, while it's a great account for those who already have accessible savings, a no-notice, instant access account may be more appropriate for anyone who doesn't.
Even if you generally struggle to find spare funds, now is the time to start salting money away. In my article How To Save When You're Skint, I outlined five simple steps to help beginners start saving.
If you're a savings newbie, I think the best way to start is by opening a cash ISA -- where you can stash up to £3,600 tax free.
Got It Covered?
Finally, if you have dependents or are a homeowner, it might also be worth taking a moment to consider your insurance needs.
Mortgage payment protection insurance (MPPI), critical illness cover (CIC) or income protection insurance (IPI) might be appropriate for you, and could be of help if your circumstances change.
However, remember to shop around for the best possible deal, and don't forget that it's usually a bad idea to buy MPPI from your mortgage lender.
If you suspect you're overpaying for insurance, why not look for a more competitive policy -- and put the pounds you save into your savings pot?
While the UK economy is still officially `slowing down' rather than drifting into recession, I still think it makes sense to hope for the best and get ready for the worst.
As a savings-savvy Boy Scout might say: `Always be prepared'.
> Why not compare savings accounts at The Motley Fool's Savings Centre?