While many households have been struggling to make ends meet since the pandemic started, others whose incomes haven’t been impacted have managed to put more money away.
With many normal day-to-day activities on hold for now, and lots of us working from home, some people may now have more cash sitting in their bank accounts as a result. While splurging may be tempting, this could be a great opportunity to boost your savings or help clear existing debt.
So, what should you do with any extra money from lockdown?
Here, Laith Khalaf, a financial analyst at AJ Bell, shares four ways to use any extra lockdown cash…
1. Pay down credit cards
Paying down expensive debt is one of the best investments you can make. You may well be able to transfer expensive credit card debt to a provider who is offering 0 per cent on balance transfers. You will need to qualify for the account, but if you can switch from paying a typical 17 per cent rate to 0 per cent with a bit of paperwork, that’s a no-brainer.
The introductory offer of 0 per cent will only last for a limited period, after which much higher rates start to apply.
2. Pay down your mortgage
After you’ve paid off more expensive debt, it’s worth considering overpaying your mortgage. The yield on doing so will depend on the mortgage interest rate you’re paying and indeed the rate you will pay in years to come, which isn’t quantifiable right now.
Mortgage rates vary depending on the provider, term, and when you took them out, so check what rate you are paying. And many mortgages will only allow you to overpay a certain amount each year before you start to incur punitive charges.
3. Actively manage your cash
Shopping around for the best rate on your savings is always a good idea. You could also consider locking away your money for longer in a fixed term bond to harvest higher rates.
Keep an eye on the fixed rate bond market every now and then, because rates move around based on market expectations of interest rates. If there is a strong economic recovery, or inflation starts to climb, rates on fixed-term bonds with longer maturities may increase.
4. Top up your pension
If you’re able to leave your money invested for the long term, one option is to top up your pension. Check if your employer will match any additional contributions you make.