Saving Over Spending Is New Trend

Saving money is proving preferable to spending it at the moment, according to an expert.

Although people are storing their cash in a less "traditional" fashion they are managing their money in a way which is equal to saving, a Lloyds TSB's study has found.

This trend, sparked by low interest rates, has lead to savings balances increasing, the bank's UK chief economist has asserted.

"People, effectively, are borrowing less. They are paying off loans and they're not borrowing as much, which [has] exactly the same effect," he said.

The spokesman added that more people are choosing to prioritise paying off their mortgages at the moment.

Demand for new personal loans is weak and people are paying off debt or building savings in response to economic circumstances.

Economists say many are battling to improve their personal finances because low interest rates and the ongoing recession do not encourage saving.

Top tips to managing your finances:

•    Most people need to borrow for major purchases. Houses and cars are the highest value items that most people buy; but few can pay cash. That means borrowing. The key is to borrow over a term less than the life of the benefit. So for a house 25 or 30 years is reasonable as a home should last at least that long, but for a car five years (or less, especially if it is not new) would be more appropriate. Other items, say a PC, might be even less.
•    Using loans for normal living expenses and everyday replacements, like clothes, is a bad idea. Funding an income and lifestyle mismatch with credit causes debts to grow. They become difficult to service when interest rates or other costs rise.
•    A good approach when using savings is to treat the withdrawal as a loan from the savings account to the purchaser. Savings should then be repaid over an appropriate period exactly as if it were loan and with interest comparable to commercial loan rates.

If you would like to know more about savings accounts why not ask AnswerBank Business and Finance.