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The average Briton is saving half as much as last year thanks to rising prices, a new survey from Aldermore Bank has found.
While deposits in savings accounts are declining, the 4,000-person survey also found that 80 per cent of UK adults now depend on their savings to cover the rising cost of living.
Four in five Britons are drawing on their savings to deal with the cost-of-living crisis, Aldermore said, and more than a third of those who had savings had to take a plunge in the past month to make an essential payment to do.
UK inflation remains at its highest level in 40 years, with average prices rising by 10.5 per cent in the 12 months leading up to December 2022.
In April, the government’s energy price guarantee, which caps energy costs, will be increased from £2,500 to £3,000, meaning many households will face higher bills.
Getting started with your savings? Four in five people with savings depend on their savings to help manage the cost of living crisis.
In addition, more than a third of households expect broadband costs to rise, according to a separate survey by Comparethemarket.com, as suppliers introduce bill increases linked to inflation in April.
A third of households also expect their car insurance costs to rise and 28 percent expect higher home insurance bills.
The most recent data from Comparethemarket.com shows that car and home insurance have increased by a combined average of £93 year-on-year.
Aldermore’s survey found that nearly a third of UK savers say their financial situation is unsustainable, while nearly half admit to worrying about their financial future.
It also found that three in ten Britons have saved nothing in the past 12 months, compared to a quarter a year earlier.
With savings running out, many are doing everything they can to cut their costs, Aldermore said.
More than two in five Britons shop less often for non-essentials and more than a third shop at different supermarkets to get the best deal.
Nearly four in ten socialize less and two in five use their car less to save on fuel costs.
Inflation: The overall CPI rate fell to 10.5 percent in December. More than a third of Britons scour various supermarkets to get the best deal.
Ewan Edwards, director of savings at Aldermore, said: ‘The pain many people are feeling because of the rising cost of living is understandable.
With inflation hovering around 10 percent, now is a better time than ever to start looking for the best deals available and make sure your money is working as hard as possible.
“We need to see the introduction of one easy access rate, to make it easier for individuals to compare interest rates across the market.
“Our research shows that seven in 10 UK adults agree that all banks and building societies should be required to pay a minimum interest rate to savers, so that this could encourage those who don’t save to start.”
Tips for building a savings fund
Check where your savings are currently held
One in 10 people who don’t save do so because they believe interest rates are low, Aldermore said.
This isn’t surprising given that the average bank’s easily accessible savings account still pays less than 1 percent.
In fact, about half of instant access accounts still pay 0.5 percent or less, according to Paragon Bank’s latest analysis, with nearly one in 10 accounts earning less than 0.1 percent.
Low base: Many of the big banks continue to offer easy access savings rates around 0.5% by default
However, it is possible to do much better as the best rates available today are some of the highest in more than a decade.
The best easy-to-access deals now pay more than 3 percent, while the best fixed-rate deals pay more than 4 percent.
>> Find the best accounts using This is Money’s best buy savings interest rate tables
Edwards says, “Interest rates have gone up and you should be looking around for the best rates; the worst thing you can do is earn nothing at all.
“Compound interest can definitely add up over time, so it’s worth investing an hour or two to look for the right savings product.”
Try to save a fixed amount every month
The hardest part about saving is often keeping the momentum going each month. Setting up a monthly direct debit or standing order on a savings account makes it harder to fail.
For someone trying to start a savings habit, a regular savings account may be the best option. These typically offer higher interest rates than regular easy access accounts, although there is usually a monthly or annual limit on how much depositors can put in.
A regular savings account is in fact a monthly saver that allows savers to set aside money up to a certain amount each month.
Some regular savings accounts also have restrictions. For example, they may not allow depositors to withdraw their money until the end of a 12-month term.
Edwards: ‘Instead of just putting aside the money you have left over at the end of the month, you try to save a fixed amount regularly and consistently.
“Track your savings to make sure you’re sticking to your goals.”
Save on unnecessary expenses
For those struggling to see how to save in the first place, it may be time to kick a bad habit to kickstart a saving habit.
Maybe it’s time to quit smoking or start ordering takeout on a regular basis. Removing an expensive bad habit frees up money that can be spent on savings.
“Small changes over time, like making your own coffee or lunch a few days a week, can add up,” says Ewan Edwards, director of savings at Aldermore.
We all deserve a treat now and then, but unnecessary spending habits can sabotage your savings.
‘Small changes over time, such as making your own coffee or lunch a few days a week, can really add up.
Subscription and insurance costs can also be reduced by shopping around.
For example, according to Comparethemarket.com, Britons could save up to £533 by switching their car and home insurance policies.
“Car insurance and gym memberships are two types of payments that are often cheaper if you pay annually rather than monthly,” says Edwards.
“While you need a lump sum to pay in one go, you can save money in the long run.”
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