Our plans, contingency funds, and the save vs borrow safety-net debate.
As we see a surge in emergency based Chip goals, I think it’s important to address Chip’s plans around the global COVID-19 crisis, and how we’re placed to help our savers.
Over the last few days we have had a spike in saver numbers as well as savers putting money aside for contingency funds. We are here to support our savers and help them create financial contingency plans.
These are the steps we are taking to provide you with a better service over the next few months:
1. Make a manual save everyday
We're encouraging all our savers to make sure they have emergency funds saved up.
If you want to save up a bit faster, we've changed our manual save limits. You can now make a manual save everyday, as many days a month as you like. Just note you can't have more than £10,000 your in Chip account.
2. AI adjustment
Our new Open Banking tech is making Chip’s AI even smarter. Your automatic saves may seem more aggressive in the coming months as we’re looking at ways of putting aside more money for you, without impacting your day-to-day spending.
3. Uninterrupted service commitment
Chip has several contingency plans in place to keep operating regardless of how severe the outbreak becomes.
This week we tested remote working to great success, and found Chip could function as normal and ensure our customers can easily access their money. We’ve grown the Chip team to over 60 now and are not reliant on any single individuals to maintain our systems.
I’d also like to remind all our savers that, whilst Chip does not yet offer access to FSCS protected savings accounts, their money is held in a ring fenced account ultimately stored with a major retail bank. This money is not used by Chip for lending or trading activities. So whatever happens with the economy in the coming weeks and months your money is safe in Chip.
And a note for our crowd investors and savers alike, Chip is well-capitalised and ready to weather any storm the coming months might throw at us.
How Chip can help - rainy day funds
With all that said, I think it’s worth looking at how Chip can help people in the coming months in general.
I’m not going to write about the coronavirus specifically (mainly because I’m the CEO of a fintech that helps people save, and not a medical policy expert), but I think Chip can be a real help in uncertain times.
One of the reasons I founded Chip was that I very suddenly found myself a grown-up and an expecting father, so I needed to be more responsible with my money.
Something that becomes very apparent as you get older is unexpected expenses lurk around every corner; boilers break, roofs leak, cars need repairs, and you’re the one who needs to sort them out.
But the reality is there’s only so much you can actually plan for in this life.
Whether it’s something that seems trivial, like needing to call in an emergency locksmith, or something as terrible as serious illness or injury, unless you have a crystal ball you don’t know when life will throw any of this at you.
But something that will always help is having some money squirrelled away. And one of my inspirations for Chip was to have a tool that would make sure people could do this without needing to think about it.
Are you financially shockproof?
There’s some discussion in the media about an economic downturn, coming off the back of the uncertainty brought about by the COVID-19 pandemic.
Anyone who’s been around for a few years will have seen their fair share of recessions, both big and small; the Black Wednesday crisis of 1992; the Dotcom Bubble of 2001; and of course the biggest of them all, the Financial Crash of 2008 (AKA the Great Recession).
These were some especially frightening times to be an adult and I’m sure many people reading this will remember them. Some may have even longer memories and can recall the global recession of the 1970s.
But I’m sure everyone will agree that having a rainy day fund is absolutely essential. Whether it’s for repairing your car, or making sure you can handle a recession.
Britain has a savings problem
I’m sure many of you will be familiar with the common wisdom on how to prioritise your finances;
- Pay off any expensive unsecured debts (overdrafts/credit cards/loans).
- Save up two months’ salary.
- Start putting money aside to split between high-risk/return investments and safe/stable interest-bearing products.
Of course life isn't this simple and it can be hard to have any money at all put aside, let alone two months’ salary. And millions of people in the UK have less than £100 saved up, which leaves them exposed to financial shocks, like needing to take two weeks off work.
But we’ve found that the average Chip saver can put aside around £1,800 a year, without noticing it. Which can be a very useful amount of money if you find yourself in a pinch.
We’ve written elsewhere on steps you can take to prepare for coronavirus and what it means for your money. I’d encourage everyone to read this, or other guidance, like the steps advocated by our friends over at Money Saving Expert.
But, at risk of hammering the point, putting money aside is always a good place to start.
But interest rates have just been cut - couldn’t I borrow rather than save?
The Bank of England (BoE) cut the base rate of interest (if you’re not familiar with the base rate, to put it simply, this is the interest rate that all others follow). Bringing rates down to 0.25%, which is a historic low, having only been taken this low once before as a calming measure after the Brexit Referendum in 2016.
So, chances are it’ll get cheaper to borrow money, and generally this is one of the cheapest times ever to borrow money. So this is an option that’s available to you if you really need it.
Do you really need it?
But the key words here are “really need it”. It’s worth keeping it as an option in your back pocket or as a last resort. But generally, it’s unwise to rely on debt for your day-to-day expenditures (if you are struggling with debt, I’d encourage you to seek help from a charity, like StepChange).
It’s always worth remembering that borrowing is essentially gambling on your future income. You need to be sure you can meet your repayments and keep your credit score in good shape, or your debts could quickly spiral out of control.
Think about the future
And lastly, on an ideological level, I think there’s truth to the saying that if you borrow money, you’re taking future happiness to give to your present self; and putting money aside is taking from your present self to give you happiness in the future.
I founded Chip so you can have future happiness without compromising your present day fun.
Keep calm and carry on?
To finish on a positive note, Chip’s tagline is “you can do anything”.
We all firmly believe that Chip is here to help people have the financial freedom to achieve the things that they really want to do.
Sometimes that means money for the serious things in life. But having money put aside is giving yourself options, so you can make sure you’re as in control of your life as possible.
And if you need some cheering up amid all the bad news, take a look at some of our saver stories to see the amazing things our community has made happen with money they’ve saved up with Chip.
Simon Rabin CEO