UK household savings rise by 500% in the last 40 years

The value of household savings – including deposits, savings and pensions – has grown more than six fold (539%) in real terms over the past 40 years, according to latest research from Lloyds Bank. This is equivalent to an average annual rate of growth of 5.0%. UK household savings now stand at an estimated £3,545 billion, compared to £555 billion in 1974, in today's prices.

The average value of savings per household has increased five-fold from £27,869 in 1974 to £126,278 today. This increase is not as dramatic as the overall rise in the value of household savings because of the growing number of households since 1974. In this time real household incomes have risen by 140%. There are, however, considerable differences in the value of savings with some UK households holding little or no savings. Almost one in three (32%) UK households have no savings (accounts and investments) and a further 14% hold savings of less than £1,500.

Deposit savings as a proportion of total savings falls since the seventies

The value of deposit based savings has grown by 352% in real terms since 1974; increasing from £297 billion in 1974 to an estimated £1,340 billion in 2014. The largest growth in deposit savings came in the decade to 1984 with a rise of 76%; in the decade to 2014 the value of deposits has grown by a relatively modest 17% - for half of this period interest rates have been low.

In 1974, deposit savings accounted for 53% of households' total savings; in 2014 this proportion is 38%. This equates to an average level of household deposits at £47,736 in 2014, up from £14,907 in 1974.

Proportion of income saved: the saving ratio has fallen significantly in last 40 years

The proportion of income saved by households averaged close to 10% in the ten years to 1984 against a backdrop of rising interest rates, which reached double digits for the first time in 1979. The household saving ratio peaked at 12.3% in 1980 – the highest level over the last 40 years.

The saving ratio declined rapidly during the 'noughties' decade, fuelled by rising levels of consumer spending and borrowing. Lower interest rates and greater economic stability before mid 2007 also reduced the perceived need for households to hold precautionary savings.

The saving ratio fell to an annual average low of 2.2% in 2008. Since then the ratio has rebounded strongly to average of 6.4% since 2009.

Andy Bickers, Savings Director at Lloyds Bank, said: "The UK savings market has undergone dramatic change over the last 40 years. There have been substantial rises in the total amount of savings by households as the country has become richer and the population older.

“However, the proportion of income saved by households has halved, with less being held in cash savings than in the past. Getting into the savings habit early will help the younger generations to have a more secure financial future.”

Value of pensions sees largest growth since 1974

Household savings held in the form of pensions3 has grown almost sixteen fold from £96 billion in 1974 to £1,564 billion today. Value of pensions grew by 314% in the decade to 1984, whilst over the 40 years, the annual growth rate as been on average 7% - faster than any other form savings.

Non-deposit Savings; share of pensions in total savings has doubled since mid-1970s

Among the non-deposit savings instruments, pension's share of total household savings has more than doubled since the mid-1970. The changes to private pension provisions in the period was a key driver of the rise, helping to lift pensions share of total household savings from 17% in 1974 to 44% in 2014.

Turbulence in the equity markets has contributed to a shrinking in the value of shares as a proportion of total household savings from 22% in 2007 to 18% in 2014. Although the aim during the 1980s was to create a share owning democracy in the UK, shares as a proportion of household savings has declined steadily since reaching 33% in 2000.