We’re going to take a moment to comment on how events in the Middle East have impacted financial markets. This is a constantly evolving situation, so what you read here reflects the situation as of 12:00 GMT 13 March 2026. 

Before we start: What this could mean for your day-to-day 

Here’s a quick summary of the headlines that outline some of the knock-on effects of what a prolonged conflict might mean. ‍

The fuel & bills effect: Regional tension spikes oil prices, which is important, as it's a direct link to higher costs at the petrol pump and potentially stickier energy bills at home. (This Is Money)

Shopping basket surcharge: Rerouting ships to avoid hotspots adds weeks to journeys and millions to freight costs. This eventually makes everything from electronics to your weekly food shop more expensive. (Retail Gazette)

Mortgage & interest rate link: If costs stay high, inflation becomes harder to "kill off." This makes the Bank of England less likely to cut interest rates, meaning those cheaper mortgage deals could stay out of reach for longer. (BBC)

When conflict erupts, and geopolitical events intensify, the reaction can be swift. Institutional investors try to assess potential impacts on global trade, energy prices, and broader economic stability. That uncertainty can lead to short-term volatility.

Energy markets tend to be particularly sensitive to developments in the region because of the Middle East’s importance to global oil supply.¹ Even the possibility of disruption can influence prices and investor sentiment, and because energy affects all walks of life, the reaction is global.

As a result, stock markets have seen fluctuations over the last 12 days, reflecting a familiar pattern: geopolitical news triggering short bursts of market movement.

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Why markets often react this way

Financial markets are forward-looking and like certainty. When unforeseen events occur, whether it’s conflicts, elections, or diplomatic developments, this can make the economic outlook suddenly unpredictable.

In the short term, this presents itself as volatility in our investments.

But historically, markets tend to process these events relatively quickly. Once the immediate uncertainty fades or events become clearer, investors usually shift their attention back to economic fundamentals like corporate earnings, growth forecasts, and central bank policy.²

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Volatility is part of the investing journey

While it can feel unsettling, volatility is a completely normal part of investing.

Even in strong market years, markets regularly experience temporary dips or fluctuations. These moments often reflect the market adjusting to new information, such as shifting interest rate forecasts, unexpected corporate earnings reports, or sudden geopolitical developments like we’ve seen this week.

Importantly, many geopolitical shocks in the past have caused short-term market reactions but had limited long-term impact on global equities.³

For long-term investors, these periods are simply part of the journey.

Keeping perspective as an investor

When headlines dominate the news cycle, it can be tempting to react quickly. But long-term investing usually benefits from staying focused on the bigger picture.

Market history shows that reacting to short-term volatility can sometimes do more harm than good. Instead, many investors focus on maintaining a diversified portfolio and continuing to invest consistently over time.⁴

This approach helps smooth out the ups and downs that naturally occur in markets.

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Final thought

While global events can influence markets in the short term, long-term investing is about staying committed to your goals, through both calm and uncertainty.

Ultimately, your portfolio should be centred on the future, not the news cycle. By staying consistent and zooming out, you’re ensuring that when the dust settles, your long-term financial plan is still on track.

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Sources:

¹International Energy Agency (IEA) ²Vanguard ³J.P. Morgan ⁴Fidelity

What is passive investing?

Passive investing is a long-term investment strategy that aims to replicate the performance of a market index, rather than trying to beat it.

Investors typically buy into funds, such as index funds or exchange-traded funds (ETFs), that track a broad market benchmark like the FTSE 100 or S&P 500.

Key passive investing characteristics

• Low cost: Passive funds generally have lower fees because they require minimal management. 
• Buy-and-hold approach: Passive investors aim to ride out market ups and downs over time. 
• Diversification: Tracking an index provides exposure to a wide range of companies.

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What is active investing?

Active investing involves ongoing decision-making to buy, hold, or sell assets in an attempt to outperform the market. 

This strategy is often managed by fund managers or individual investors who analyse market trends, company performance, and economic indicators to make investment choices.

Key active investing characteristics

• Higher costs: Fund management, research, and transaction fees tend to be higher. Learn about investment fees and costs.‍
• Tactical decisions: Active managers may buy or sell holdings frequently to exploit market opportunities.
• Potential for higher returns: Success depends on skill, timing, and market conditions.

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The advantages and disadvantages of passive investing

Advantages of passive investing include:

• Lower fees: Less management means reduced ongoing costs.
• Simplicity: Ideal for beginners; less time and knowledge required.
• Market-matching performance: Often performs better than many actively managed funds over the long term.

Disadvantages of passive investing include:

• No chance to outperform the market: Returns will always closely mirror the index.
• Limited flexibility: Can’t adjust quickly to market shifts or exploit short-term opportunities.
• Market downturns: Passive funds track indexes even during declines, with no defensive measures in place.

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The advantages and disadvantages of active investing

Advantages of active investing include:

• Opportunity for higher returns: Skilled asset managers can outperform the market, especially in less efficient markets.
• Flexibility: Managers can pivot strategies in response to changing conditions.
• Tailored investment strategies: Portfolios can be aligned with specific goals or themes (e.g., ethical investing, emerging markets).

Disadvantages of active investing include:

• Higher costs: Active funds charge more, which can eat into returns.
• Greater risk of underperformance: Many active funds fail to beat their benchmarks after fees.
• Requires more research and monitoring: Not ideal for novice investors or those short on time.

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Is active or passive investing right for me?

Choosing between active and passive investing depends on your goals, how much time you want to dedicate to managing your investments, and how comfortable you are with risk. How to know your risk tolerance.

If you're just starting out, passive investing is often a practical and beginner-friendly option. It requires little ongoing effort, keeps costs low, and provides broad exposure to the market.

It’s especially suited to long-term investors who prefer a “set it and forget it” approach and are happy with market-average returns.

On the other hand, if you're someone who enjoys researching companies, keeping up with economic trends, and believes in your ability (or that of a professional) to spot investment opportunities, active investing might appeal to you. 

It offers the potential for higher returns but comes with more risk, higher fees, and a greater time commitment.

You should also consider your risk tolerance. Passive investing tends to be more stable and predictable, while active investing can be more volatile, especially over shorter periods.

Importantly, you don’t have to choose one or the other. Many investors find that a blend of both, using passive strategies for long-term stability and active ones for targeted opportunities, gives them the best of both worlds.

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How to combine active and passive investing

Many investors choose a blended approach, combining both active and passive strategies to balance cost, control, and opportunity.

Common combinations:

• Core and satellite: Use a passive fund for the core of your portfolio, with smaller “satellite” allocations to active funds targeting specific sectors or regions.
• Thematic investing: Stick with passive index funds for broad market exposure and add active investments in areas you believe have strong growth potential.
• Rebalancing over time: Start passive, then explore active strategies as your confidence and knowledge grow.

This approach allows flexibility while keeping fees manageable and risk diversified.

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Passive and active investing summary

Understanding the core differences between passive and active investing is essential for building a strategy that suits your financial goals and comfort level. 

While passive investing offers cost-efficiency and simplicity, active investing presents opportunities for higher returns, albeit with added risk and effort.

Ultimately, there's no one-size-fits-all answer. Many UK investors successfully use a mix of both approaches to suit their needs.

In the next guide in our Investment Strategies series, we’ll explore another foundational concept: Growth Investing vs Value Investing, two popular approaches to selecting individual stocks.

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The Bank of England Base Rate, also known as Bank Rate, holds significant influence over the UK's financial landscape, impacting borrowing costs, mortgage rates, and savings interest. 

It's important to understand the Bank of England Base Rate and how it affects your financial decisions. In this guide, we'll explain what the Bank of England Base Rate is, how it influences interest rates, its impact on the economy, and why it plays a role in influencing spending and inflation.

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What are Interest Rates?

Interest rates refer to the percentage charged or earned on borrowed money or invested funds. 

Lenders charge interest on loans as compensation for the risk and opportunity cost of lending money, while savers earn interest on their deposits as a reward for entrusting their funds to financial institutions. Learn more about interest rates.

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What is the Bank Rate?

Bank Rate, often referred to as the Bank of England Base Rate, is the key interest rate set by the Bank of England. It acts as a tool for controlling inflation and stabilising the economy. 

The Bank of England assesses economic conditions and adjusts Bank Rate accordingly to support the government's inflation target and ensure economic stability.

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How Bank Rate Affects Your Interest Rates:

Changes in Bank Rate have a ripple effect on various interest rates throughout the economy. Here's how it influences your financial decisions:

• Mortgage rates: Bank Rate influences the cost of borrowing for banks, impacting the interest rates they offer on mortgages. When Bank Rate rises, mortgage rates tend to increase, making borrowing more expensive. When Bank Rate decreases, mortgage rates may go down, providing potential savings for homeowners.
• ‍Savings interest rates: Bank Rate also affects the interest rates offered on savings accounts. Higher Bank Rates generally result in higher savings interest rates, potentially increasing the returns on your savings. Lower Bank Rates may lead to reduced savings interest rates.

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How Changes in Bank Rate Affect the Economy:

Changes in Bank Rate have a significant impact on the broader economy. Here are some key effects:

1. Borrowing costs: Changes in Bank Rate directly influence the cost of borrowing for individuals, businesses, and financial institutions. Higher rates increase borrowing costs, potentially curbing spending and investment. Lower rates encourage borrowing and stimulate economic activity.
2. ‍Inflation: Bank Rate plays a crucial role in managing inflation. When inflation is rising, the Bank of England may increase Bank Rate to reduce spending and control price increases. During economic downturns, lowering Bank Rate can encourage borrowing and spending, boosting economic activity.

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Why Does Bank Rate Influence Spending and Inflation?

Bank Rate influences spending and inflation primarily through its impact on borrowing costs. When borrowing becomes more expensive due to higher interest rates, individuals and businesses may reduce their spending, leading to a potential slowdown in economic activity and inflation.

Lower interest rates make borrowing cheaper, encouraging spending, investment, and economic growth. How do interest rates affect inflation? 

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Bank Rate Summary

Understanding the Bank of England Base Rate is crucial for making informed financial decisions in the UK. The rate directly affects interest rates on mortgages and savings, impacting borrowing costs and potential returns. 

Changes in Bank Rate have far-reaching effects on the broader economy, influencing spending, investment, and inflation levels.

When can I retire?

You can technically retire at any age you choose, provided you have sufficient personal savings to fund your lifestyle. However, if you are relying on pension income, your retirement age is dictated by two government controlled access points:

• Private pension age (currently 55): The age at which you can access your own pensions.‍
• State Pension age (currently 66): The age the government starts paying your State Pension if you qualify. Please note: This is currently rising and will reach 67 by 2028. This change affects anyone born on or after 6 April 1960.

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The normal minimum UK pension age 

The Normal Minimum Pension Age (NMPA) is the earliest age at which you can legally access your private or workplace pension savings without incurring a heavy tax penalty.

• Until 5 April 2028: The NMPA is 55. (Access at 55 is only guaranteed if you reach that age and crystallise your funds before 6 April 2028).

• From 6 April 2028, the NMPA will rise to age 57.

How the age increase affects you

The move from age 55 to 57 will affect you if you were born after 5 April 1973. If you fall into this group and are planning to start taking money at 55 or 56, you will need to adjust your plans, as you will generally not be able to access these funds until you reach age 57.

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What is a protected pension age?

A protected pension age is a ‘protected right’ attached to certain older pension policies that allows you to access your savings earlier than the Normal Minimum Pension Age (NMPA).

If you joined a specific pension scheme before 6 April 2006 that granted an ‘unqualified right’ to take benefits at an age lower than the current NMPA (such as age 50 or 55), you may be able to keep this right even after the 2028 age increase.

Important Considerations

This is a complex area of pension law and rules vary significantly between providers. Because your eligibility depends on the specific wording in your original policy deed, we recommend seeking professional financial advice. A qualified adviser can review your documents to:

• Confirm if your protected age remains valid.
• Ensure you do not accidentally lose this protection, for example, by transferring your pension to a different provider.

Because the rules depend on the specific wording in your policy deed, it’s recommended to seek financial advice from a professional. Qualified financial advisers can review your documents to confirm if your protection is valid and ensure you don’t accidentally lose it by transferring the pot.

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Can I withdraw my pension early? 

You can usually only withdraw your pension before the minimum age if you are suffering from serious ill health or have a terminal diagnosis. 

• If you are physically or mentally unable to do your job (and in some cases, unable to do any job), you may be allowed to retire early and take your pension.
• If you are diagnosed with less than one year to live, you can often take your entire pension pot as a tax-free lump sum if you are under 75.‍
• If you withdraw money early for any other reason (e.g. just because you need the cash), it is classified as an ‘unauthorised payment’. The tax penalty is severe and HMRC will charge you up to 55% of the withdrawal amount.

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Do I have to retire to take my pension?

You do not have to stop working to start drawing money from your private or workplace pension. This process is often called ‘flexible’ or ‘phased’ retirement. You can:

• Continue full time work and take some pension cash for a specific purchase (like paying off a mortgage).
• Keep working part-time and use your pension to top up your lower salary.
• Stop working entirely and live solely on your pension.

It’s worth noting that if you take taxable income from your pension while still working, your annual allowance (the amount you can save into a pension tax-efficiently) may drop from £60,000 to £10,000. This is known as the Money Purchase Annual Allowance (MPAA).

The tax-free lump sum

For many, an attractive feature of a pension is the ability to take a large chunk of cash completely tax-free. This is known as the ‘tax-free lump sum’, and understanding the rules around it and how it’s taxed is important for avoiding an unexpected bill. Learn more about the tax-free lump sum.

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‍Interest rates reflect the cost of borrowing money. When you take out a loan you are charged interest on the amount borrowed.

AER stands for "Annual Equivalent Rate" and it is a way to express the interest rate on a savings account or other type of deposit account in a way that makes it easy to compare the effective rate of interest you will receive. 

AER takes into account the effect of compound interest and expresses the rate as if interest were paid and compounded once per year. So AER is a standardised way to compare the interest rates across different accounts, and make sure you understand the interest you earn.

Interest rates are also relevant to savings accounts but for this, they are usually referred to as the “yield” or “return” on your deposits. 

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Why Do Interest Rates Change?

There are several factors as to how interest rates are determined. This includes the monetary policy of the central bank (such as the Bank of England), the strength of the economy and the overall level of inflation.

1. Inflation: When inflation is high, it means the purchasing power of money is decreasing and requires more money to purchase goods and services. Raised interest rates make borrowing more expensive which can slow economic growth whilst reducing inflation.
2. Economy: If the economy is struggling and unemployment is high, central banks, such as the Bank of England, could lower interest rates to encourage borrowing and spending. This can help stimulate economic growth.
3. Monetary Policy: Central banks can use a variety of tools to control the money supply and interest rates in the economy. For example, buying or selling government bonds on the open market can influence interest rates and the supply of money. Governments can also have an influence on interest rates through policy decisions.

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What Types of Interest Rates Are There? 

There are several different types of interest rates which can apply to different types of financial products. The two common types of interest rates are:

1. Fixed Interest Rate: A fixed interest rate is when an interest rate remains the same over the life of a fixed term or other financial product. For example, a fixed-notice account means it’ll have the same interest rate for the entire fixed term period. 
2. Variable interest Rate: A variable interest rate is when an interest rate can change over time. This is typically based on an underlying index such as the prime rate, market conditions and is dictated by the bank's strategy and control.

There are different types of interest rates that can impact the overall cost of a loan. It’s important to understand the type of interest rate that applies to any given product before making a financial decision.

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How Do Interest Rates Affect My Savings?

Interest rates can affect and benefit your savings account by increasing the amount of money you earn on your deposits. Often, when you deposit money into a savings account, the bank pays you interest on that money. This is expressed as an annual percentage of the total deposit. 

When interest rates are high, it means you can earn a higher return on your savings. This can help your money grow faster. High-interest rates can also help you protect the value of your cash against inflation. This means that your savings lose less value over time. 

Interest rates can vary widely between different types of savings accounts and between banks. It’s always important to do your research into savings accounts and banks to ensure you’re getting  a competitive interest rate and that your money is protected by initiatives such as the FSCS (Financial Services Compensation Scheme).

What is a pension fund? 

A pension fund is a large pot of money pooled together from many different pension savers. Professional fund managers use this pool to buy a diverse range of assets within their pension plans, such as:

• Shares: (equities): Owning small parts of companies (e.g. Apple, Shell, Tesco). Historically, these offer high growth but come with higher volatility. 
• Bonds: Loaning money to governments or corporations in exchange for interest. These are generally safer/lower risk but offer lower returns.
• Property: Commercial real estate like warehouses and office blocks.

By investing in a fund, you don’t choose specific investments yourself. The aim of holding a fund is to spread your risk over hundreds or even thousands of assets, to smooth out the ups and downs of the market.

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What is a target date fund? 

A target date fund (TDF) is a type of pension fund designed to make retirement planning simple and automatic.

Instead of asking you to choose a level of risk when you start pension saving, you simply enter the year you plan to retire.

• In the early years (when retirement is far away) the fund automatically invests mostly in shares to maximise growth. You can afford to take risks because you have time to recover from market dips.
• In the later years (as you approach retirement) the fund gradually shifts your money into safer assets like bonds. This protects your pot from volatility as you get closer to needing the money.

The ‘glide path’ approach removes the need for you to constantly monitor and rebalance your portfolio, as the fund does this for you.

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Choosing a pension fund 

If you are managing your own pension (like in a SIPP) or looking at your workplace options, choosing the ‘right’ fund depends on your timeline.

• Timeframe: If you have 30+ years until retirement, inflation could erode the returns from lower risk assets, so some exposure to shares can help beat rising prices. If you’re retiring next year, you’ll likely want the safety from cash or bonds. 
• Risk tolerance: Think about the risk you’re comfortable with. Can you handle watching some ups and downs as the market moves? If not, a lower-risk fund might be better suited to you, even if returns are lower.

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What is a default pension fund?

A default pension fund is the investment option you’re automatically allocated when you join a workplace pension scheme. It’s a ‘one-size-fits-all’ solution for the average employee.

While default funds are regulated to be suitable for most people, they are not tailored to your specific circumstances or retirement savings trajectory.

They typically take a balanced approach that’s potentially too cautious for the younger saver or too risky for someone closer to retirement.

Some default funds use a target date approach and adjust automatically, check whether yours does. 

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How to check your pension fund  

To check which pension fund you’re invested in and how it's performing:

1. Log in to your provider’s app or website
2. Find your fund ‘factsheet’. This document will give you a breakdown of what the fund is invested in, along with past performance and the risk profile.
3. Check your fees: Look for the Ongoing Charge Figure (OCF) or Annual Management Charge (AMC). Just as investment returns compound over time, so do the costs of high fees, making them more damaging than they might initially appear.  

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Pension consolidation

Understanding where your pension savings are invested is crucial, but this can be very difficult to track if you have a lot of different pots from previous jobs; some of which you may have difficulty accessing.

Managing a portfolio of scattered funds can mean you’re paying higher fees, losing track of documentation, and lacking a clear strategy. One solution to this may be  to consolidate; bringing your pensions to one provider that gives you complete oversight over how much you have and where it’s invested.

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Note: Before consolidating, check whether any of your existing pots have valuable guarantees, such as a guaranteed annuity rate, that would be lost on transfer. Read our next guide to learn more.

‍Important limitation: The Chip SIPP does not currently offer a drawdown service. To access your funds at retirement, you will need to transfer your pension to a provider that supports drawdown.

What is Aggressive Investing?

Aggressive investing is a strategy focused on maximising returns by taking on higher levels of risk. It typically involves investing in growth-oriented assets such as:

• Equities, especially small-cap or emerging market stocks
• Sector-specific funds (e.g., technology, biotech)
• High-yield bonds or other speculative fixed income
• Venture capital or early-stage companies (for more advanced investors)

The goal is capital appreciation, even if it means weathering greater volatility in the short term. This strategy is often favoured by investors with a long time horizon and a higher tolerance for market fluctuations.

Characteristics of Aggressive Investing:

• High potential for long-term growth
• Greater short-term volatility
• Less focus on income or capital preservation

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Pros & Cons of Aggressive Investing

Pros of aggressive investing include:

• Higher potential returns over the long term
• Capitalises on economic growth and innovation
• Suited to long-term investors who can ride out volatility

Cons of aggressive investing include:

• Greater risk of short-term losses
• Emotional discipline required during downturns
• May underperform in stagnant or declining markets

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What is Defensive Investing?

Defensive investing seeks to protect capital and reduce risk, especially during market downturns. Defensive strategies often prioritise stability and income over growth. Common defensive assets include:

• Blue-chip or dividend-paying shares
• Government and investment-grade bonds
• Cash or near-cash equivalents

This approach is typically chosen by those nearing retirement, or those who are more risk-averse, and prefer predictable returns.

Characteristics of Defensive Investing:

• Lower potential returns, but reduced risk
• Focus on capital preservation and income
• More resilient during economic slowdowns

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Pros & Cons of Defensive Investing

Pros of defensive investing include:

• Lower volatility and steadier returns
• Capital is more protected in downturns
• Often generates consistent income (e.g., dividends, bond yields)

Cons of defensive investing include:

• Lower potential for long-term growth
• May underperform in bullish or high-growth markets
• Overly conservative positioning may not keep pace with inflation

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When Might Each Style Be Appropriate?

Your investment style should reflect your risk tolerance, financial goals, and investment time horizon. Here's when each style might be appropriate:

Aggressive investing might suit you if:

• You have a long investment horizon (10+ years)
• You’re comfortable with market ups and downs
• You’re focused on long-term capital growth rather than short-term stability

Defensive investing might suit you if:

• You’re closer to retirement or need access to funds in the short term
• You value stability and lower risk over high returns
• You’re more focused on preserving wealth or generating income

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Combining strategies: a balanced approach

Many investors don’t choose just one style, they blend aggressive and defensive investments to match their personal investment risk profile. This is known as a diversified or balanced portfolio.

For example:

• Investors with a long horizon might lean 80% aggressive / 20% defensive.
• Those approaching retirement may prefer 30% aggressive / 70% defensive.

Over time, investors often shift toward a more defensive posture as their financial needs change, this is called life-stage investing or glide path investing.

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Is aggressive or defensive investing right for me?

To decide which strategy suits you best, consider the following questions:

• How comfortable are you with investment losses in the short term?
• When will you need access to your invested money?
• Are your goals growth-oriented, income-focused, or a mix of both?

There’s no “one-size-fits-all” answer, many investors adjust their portfolios based on their life stage, financial goals, and evolving risk tolerance.

If in doubt, seeking independent financial advice can help tailor a strategy to your unique circumstances.

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Aggressive and defensive strategies summary

Understanding the difference between aggressive and defensive investing is a foundational step in building an investment plan aligned with your goals. Both strategies serve a purpose and can play a role in a well-rounded investment portfolio.

AstraZeneca, the FTSE 100’s largest company, is powering towards a potential £200 billion valuation this year.¹ The pharmaceutical giant is regaining momentum as tariff concerns fade, with robust earnings and promising clinical trial results reigniting investor confidence.

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What’s driving AstraZeneca’s recent growth?

• Pipeline momentum: Positive trials in new treatment for high blood pressure Baxdrostat, as well as multiple new regulatory approvals across oncology, cardiovascular and rare disease therapies. 
• Strong financial results: Total revenue was up 9% in H1 2025 to £21.3 billion, operating profit rose 23% to £5.46 billion, and pre-tax profit rose 26% to £4.96 billion. 
• Regulatory clarity in China: Investigations into the company’s tax and insurance practices are nearing resolution, with fines expected to be minimal.
• Tariff risk under control: Reassurance on the impact of US trade policy, with tariffs seen as manageable. 

If AstraZeneca continues to post strong earnings results and investors continue their vote of confidence, hitting the £200 billion valuation before the end of the year could be within reach.¹ 

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Why does this matter?

As the FTSE 100’s largest company, solid growth from mega-cap stocks like AstraZeneca is enough to have a positive impact on the whole index. 

Although one stock's growth doesn’t indicate a trend for other stocks in the FTSE 100, it does show us how strong innovation and earnings (even in the face of adversity) can continuously drive value and resilience. 

For long-term investors, AstraZeneca’s rally reinforces the case for focusing on high-quality companies with a history of long-term growth often found in market-cap weighted indexes like the FTSE 100 or S&P 500. 

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Where does Chip come in?

With Chip, you can invest in index funds like the FTSE 100, which track the price of huge companies like AstraZeneca. Companies move in and out of the underlying index based on their market cap (value of total shares), so you can be sure you’re always investing in the 100 most valuable stocks. 

Open a Stocks & Shares ISA or General Investment Account, choose your funds, and you’re away!

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Sources

¹TheMotleyFool

We all know that saving is important, yet for many, actually doing it can feel like an uphill battle. Why is it so hard to set aside money, even when we know it’s in our best interest?

To get to the bottom of this oft-experienced conundrum, let’s explore the psychological reasons behind savings procrastination and look at evidence-backed ways to conquer it.

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Present bias: The now vs. later dilemma

At the root of savings procrastination lies a cognitive quirk known as present bias, which causes us to prioritise immediate rewards over long-term gains, even when the latter are objectively better.

This is why many of us would rather have £100 today than £120 in a year, despite the fact that waiting would yield more value. Present bias tricks our brain into opting for immediate spending, undermining our ability to save for future goals.

A classic illustration of present bias is the famous Stanford marshmallow test. Conducted in the 1970s by psychologist Walter Mischel, the experiment offered children a choice: eat one marshmallow now, or wait 15 minutes and receive two marshmallows instead.

The test revealed a lot about self-control and delayed gratification. Some children managed to wait for the second marshmallow, while others quickly gave in to the temptation.

Interestingly, follow-up studies found that the children who were able to wait for the second marshmallow tended to achieve better life outcomes, including higher academic achievement and greater financial success.

This experiment encapsulates how present bias works in real life. When faced with the choice of spending or saving, some of us act like the children who opted for immediate gratification, preferring money now, even though we know we could benefit more by saving for the future.

Understanding this bias can help us recognise why we struggle with saving and give us the insight we need to build better financial habits.

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Loss aversion

It is natural for us to experience what’s known as loss aversion, where the pain of losing money feels stronger than the pleasure of gaining it. When we save, it may feel like we’re sacrificing our current spending power, even though we’re setting ourselves up for future financial security.

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Choice overload

With so many savings options out there—ISAs, pensions, investments—it’s easy to become overwhelmed and opt, instead, for doing nothing at all. Choice overload can create decision paralysis, stopping us from taking any meaningful action toward saving.

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Optimism bias

Another common mental block is optimism bias. This is where we overestimate how well things are liable to go in the future.

We might assume that, as soon as we get that promised raise, it’ll be the perfect time to start saving, or to think that a future version of yourself will be better placed to handle difficult financial decisions, which can lead to continuous delays.

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Evidence-based strategies to combat saving apathy

Understanding the psychology behind why we put off saving is only half the battle. To make the most of your money, it’s key to apply practical strategies that will break through these barriers.

1. Embrace automation

One of the most effective ways to beat procrastination is to remove the element of choice altogether. Set up automatic transfers to move a portion of your income to a savings account on payday.

2. Visualise your future self

Research shows that vividly imagining your future self can help counteract present bias. By creating a mental connection with your future self, you’re more likely to make decisions that benefit you in the long run.

3. Start small

Large, long-term financial goals can feel overwhelming. To combat this, use the goal-gradient hypothesis, which shows that people are more motivated when they see progress toward their goal. Start with small, achievable savings targets to build momentum.

4. Use mental accounting

Take advantage of mental accounting, a tendency to mentally separate funds for specific purposes. By creating separate savings accounts or "pots" for different goals, you reduce the likelihood of dipping into your savings.

5. Make saving tangible

Using visual feedback can make the abstract concept of saving feel more real. Tracking your savings progress visually can provide immediate rewards and encourage consistent contributions.

7. Simplify your choices

If you’re overwhelmed by myriad savings options, streamline your choices to reduce cognitive overload. Start with just one or two savings accounts or products to get the ball rolling. You can diversify later as your savings grow.

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Building a path to financial wellness

The key to overcoming savings procrastination is to focus on progress, not perfection.

Each small step you take toward saving, no matter how small, is a win. Celebrate your achievements along the way and be patient with yourself as you form new habits.

By understanding the psychological forces behind procrastination and using these strategies, you’re not just building better savings habits, you’re changing your relationship with money.

This shift in mindset can make a world of difference in your financial future.