Debts, and low rates, deter savers

Savers are unlikely to take advantage of the higher interest rates on offer from fixed-rate bonds and cash individual savings accounts (Isas) while they still have debt to repay, according to a new survey of independent financial advisers (IFAs) by software provider 1st-The Exchange.

When asked what they considered the most important financial resolution for clients in 2010, almost half of the 118 IFAs surveyed – 47 per cent – opted for paying off debt, ahead of boosting savings, pension contributions or stock market investments.

Only 2 per cent of the IFAs said putting more money into an tax-efficient Isa should be a priority for clients in the year ahead. None of the respondents opted for putting more money into stock market investments.

This reluctance to save also emerges from research by professional advice website Unbiased.co.uk, which shows that consumer savings levels fell to £16bn in the third quarter of 2009, from £19bn in the previous period. But this £3bn drop in savings did not lead to a similar reduction in personal debt, which dipped by only £1bn in Q3 2009 to £4bn (excluding mortgages).

Debt levels in the third quarter were still almost double their level at the beginning of 2009.

Karen Barrett, chief executive of Unbiased.co.uk, said: “With interest rates at 0.5 per cent over the past nine months, many consumers are unsurprisingly confused as to how they can make their savings work hardest for them. It is therefore vital for consumers to keep a close eye on savings rates and seek advice from an independent financial adviser, who can search the whole of the market.”

However, nearly 1 in 5 of the IFAs questioned by 1st-The Exchange said that they would make protecting clients against financial risk their main aim in 2010.

“The results demonstrate that IFAs are advising their clients to enter the New Year with caution,” said a spokeswoman.