On the face of it this question may look like a waste of time, the answer seems so obvious. However, whilst the initial response is obviously a resounding no, there are added complexities to this question that are worth discussing.
We save money because we can’t predict the future, and because we want to make sure that come rain or shine we will be able to look after ourselves and those we love. In what circumstances then could you potentially be saving too much?
#1 If your savings are healthy then treat yourself
If you are debt free, your bank account looks healthy, you have all your outgoings covered, your emergency fund is full, and you are meeting your other savings goals, then maybe you can afford to loosen your purse strings a little.
Whilst you can’t have too many savings, it is also important to be able to enjoy your life and the money you work so hard to earn. Whilst you should definitely make sure that you have all your saving bases covered, you should also acknowledge that if they are covered then you can allow yourself some space to spend money on non-essential items.
If your savings are looking healthy then maybe instead of saving those extra pennies this week you can take your loved ones out for dinner. Wealth comes in many forms. You can also take advantage of Oval's bespoke saving steps to ensure that even whilst you spend you are putting money away. By integrating saving habits into your everyday life, instead of always 'doing without', you are more likely to develop a sustainable saving habit.
#2 Diversify your savings
All financial experts recommend that your ‘emergency savings fund’ should have enough money in it to keep you going for anything between three months to a year if your circumstances should suddenly change – due to events such as redundancy or illness. This includes all bills, rent, car payments, phone charges, food costs: everything.
If you look at your emergency fund and it has enough money to cover these costs then you should consider your fund ‘full’ and look to place your money elsewhere.
Begin diversifying your savings. Take a look, for example, at your pension contributions. If there is space to increase your monthly contributions then the money that you were putting toward your emergency fund can now be put towards your pension. The same goes for your student loan. Paying down outstanding debt, even if it is ‘good debt’, is always a positive step, as it frees up additional income and reduces financial insecurity.
Finally, it is a well known fact that unless the money sitting in your savings account is growing by more than the rate of inflation, it is most likely depreciating in value. To avoid this, look at secure ways to invest your capital in order to ensure that our money is earning interest whilst you are not using it.
#3 Saving all your eggs in one basket is never a good plan.
The 2008 financial crisis served as an effective wake up call to the importance of not having all your money saved with one financial institution. Northern Rock, the first bank run in over a century at the time of the crisis, was a disturbing and uncertain time for all its customers.
Putting all your eggs in one basket has famously never been a good plan. The FSCS savings protection limit in the UK is currently £85,000. This means that if something happens to the bank, you will only be guaranteed to have £85,000 of your money returned to you.
If you have more than this amount in savings it’s recommended that you spread it across numerous banks in order to guarantee the protection of your money. Even if you don’t, the fate of Northern Rock can serve as a very recent reminder that for peace of mind it may be better for you to have accounts in more than one bank.
Your capital is at risk, and past performance may not be a reliable indicator of future results. Oval Money is not permitted to provide financial advice, and if you have any questions please consult an expert.