Alliance & Leicester Savings: Does size matter?

Hands up if you really notice the difference following that much sought-after pay rise? Or if you really make the most of your bonus?

No matter how generously large or painfully small people’s pay rises or bonuses may be, nearly eight in ten (79%) of us will have already ‘mentally’ spent the extra cash before it even hits our bank accounts.

Research from Alliance & Leicester Savings reveals that of the four and a half million (17%) workers, who will receive a cash bonus this year, 40% will spend the lot and although the average amount received last year was no more than £500, more than one in ten (13%) of those who don’t save admit they would never dream of saving their bonus – regardless of how big it was.

Receiving an annual bonus is always something to look forward to, and workers across the country will inevitably have had the ‘watercooler gossip’ well in advance about which holiday, handbag, gadget or credit card bill the extra cash will be spent on.

The Alliance & Leicester Savings survey found that fewer than one in ten people (7%) actually save their whole bonus - women are maintaining their spend-a-holic reputation with nearly half (48%) spending the whole lot, compared to just over a third (34%) of men.

Ross Dalzell, Manager for Savings at Alliance & Leicester said: “It’s amazing that all the hard work that goes into securing a bonus or pay rise can be spent in just an instant. Whilst it is perfectly normal for people to want to treat themselves after receiving a hard-earned bonus, it would make sense to put at least some of it by in a savings account and not to blow it all on impulse purchases.”

And it seems Brits do no better when it comes to putting the extra money received in pay rises away; despite any good intentions, more than half (54%) find that it tends to just get swallowed up by day to day spending. More than a third (37%) of those who don’t save say they’d need to get a pay rise of 6% or more before even considering putting some away.

Dalzell continues: “One in six people (16%) surveyed received between £1,000 and £5,000 for their last pay rise, yet almost half (43%) say that they wouldn’t consider putting any extra money earned from pay rises into a savings account. With pay levels increasing above the rate of inflation, people should be taking the opportunity to stash a little bit away each month – even if they just saved half, it will be easier than having to find lump sums further down the line.”

While there could be an argument about pay rises only covering the rising cost of living, the survey reveals that the most popular reason people cited for not saving their bonus, was that the amount was perceived not to be big enough to make a real difference to their finances. Although, a one-off bonus may not make a real difference on its own, saving part of any windfall as and when you are lucky enough to receive one, could soon turn into a sizeable savings pot for the future.

One in five people do save the extra cash from their pay rise (14% in savings accounts and 7% in ISAs). However, of those who say that they try not to spend their bonus, almost a third (31%) just leave it sitting in their current accounts. And of those who receive pay rises, over seven million people (17%) leave the money sitting in their current accounts, when it could be earning up to 7.00% in interest in a savings account or ISA.

Dalzell concludes: “Bonuses and pay rises are essentially extra payments which can be put aside without impacting too heavily on your lifestyle. It is a shame that those who are restrained enough not to spend all of it leave the money sitting idle in their current accounts. Moving money into a savings account or cash ISA is easy and hassle free.”