With household bills shooting upwards, the temptation to dip into emergency savings pots to cover day-to-day living costs becomes stronger. Soaring living costs also makes it harder to have any spare cash left over to put into a ‘rainy-day’ savings fund, that can be tapped into if the worst happens.
Nearly a third (31%) have no emergency savings, according to a new survey from Paragon Bank. Among those without an emergency fund to rely on, the majority (61%) say they are not in a position to save either.
The next most popular reason given for not having a rainy-day savings pot was that people are saving towards other goals. Just over one in 10 (11%) meanwhile feel they do not need an emergency savings pot, and 10% are not prioritising saving.
Among those regularly adding into their savings pots, the average amount saved each month per household was found to be £293, with men saving more than women typically.
The survey also looked at where people had placed any savings they had made during the pandemic.
More than half (57%) used a savings account, while more than a third (35%) piled excess cash in their current account. Men were significantly more likely to leave savings in a current account, with 40% of men reporting this to be the case, versus 29% of women. One in 10 (11%) had invested savings in the stock market.
Derek Sprawling, savings director at Paragon Bank, says: “As a general guideline, we’d advise people to save up enough money to cover at least three months’ expenses.”
Tips for building up a savings pot
Struggling to save? For those looking to build an emergency savings pot but struggling to have much to cash to save, here are some tips…
1. Use ’round ups’ to regularly save small amounts
Autosaving apps may round up your spending to the nearest pound and automatically put it into a savings account. It might be baby steps but it all adds up over time. These apps may also help calculate how much you can afford to save regularly, and automatically move the money into savings.
MoneySavingExpert.com has more information about these apps and how they work (moneysavingexpert.com/savings/auto-saving-apps).
2. Make the most of current account switching offers
Some current account providers are offering big amounts of cash to switch. The money could be used to kick-start a savings habit. For example, Santander recently launched a new £140 cashback offer to eligible customers who switch to a Santander current account and First Direct is offering £150 to switchers. NatWest is also offering £150 to customers who switch their main current account.
Switching is straightforward when using the Current Account Switch Service (Cass).
3. Cut your household bills
You could try to create some ‘spare’ money that can be put into savings by shopping around and haggling with service providers. For example, Which? recently found that households could potentially make significant savings by haggling with their broadband provider.
It asked people whose contracts had ended on their mobile, their broadband or their broadband and TV package whether they had haggled or switched. Nearly half (46%) had haggled with their existing provider when their contract ended. They reported saving an average £85 on broadband, £128 on broadband and TV and £35 on mobile bills. A fifth (19%) had switched away to another provider, saving an average £35 on broadband, £65 on broadband and TV and £40 on mobile bills.
4. Don’t leave money sitting where it is earning little or zero interest
If you’re trying to build up an emergency savings pot, you’ll want to put it in an account where you can access it quickly if needed. While rates on cash savings may fall far short of the Consumer Prices Index (CPI) rate of inflation, currently at 5.4%, it’s still worth checking out the ‘best buy’ savings products, to help limit the damage caused by surging living costs.
If you have some money that can stay put for the long-term, you could consider a stocks and shares Isa. This could produce bigger returns over the longer term than leaving the money in cash, although there is the risk that the value of your pot could go down as well as up.
5. Saving for your first home? Consider a Lifetime Isa
With house prices having rocketed recently, first-time buyers face spending at least six times their annual wages to get on the property ladder in nearly half (45%) of Britain’s local authority areas, according to recent research from Nationwide Building Society.
Lifetime Isas can help aspiring first-time buyers to build up a savings pot more quickly than they would have been able to otherwise. You must be 18 or over but under 40 to open a Lifetime Isa and you can put in up to £4,000 per year. A 25% bonus will be added to your savings, up to a maximum of £1,000 per year.