Expensive living costs strangle the UK's savings

The rise in day-to-day living costs is leaving people with no spare cash to put away in savings, according to a new study by the Post Office, and those that are able to save are withdrawing their money shortly after depositing it.

Increases in council tax and energy bills have hit the UK’s wallets hard with 4.8 million people saying they simply cannot afford to make regular savings contributions because of rises in living costs.

Almost half (49 per cent) of those not saving (17 per cent of the UK) said they simply have no surplus cash at the end of each month to save.

The Post Office has also discovered the emergence of savings 'bouncers', where people who have been making savings contributions to their savings account then find that they have to withdraw the money before the month is over. The study shows that in the past 12 months, half (50 per cent) of those who made a contribution at the beginning of the month had to withdraw it before the end. One in five (19 per cent) admitted to 'bouncing' every month.

Four in 10 (43 per cent) of those who save said they stop or reduce the amount they save leading up to the Christmas period. Some are still feeling the effects into the new year, with one in five (21 per cent) savers saying that it would be at least March before they could return to saving.

Richard Norman, director of savings at the Post Office, said: "Our research shows that millions of people are missing out on earning interest on their savings and have to live without the security of having a 'savings safety net' if they ever found themselves in financial trouble.

“In times of economic uncertainty, it’s more important than ever to try and put money away. Our advice is try and keep saving regularly, even if it’s just a small amount, and consider saving less frequently such as every other month.”

Many people that are actually saving are becoming more wary of where they put their money. Due to the media attention given to the world's current economic situation, one in 10 said they are now wary of savings accounts (10 per cent) and products linked to the stock market (11 per cent).

However, almost half (47 per cent) of the respondents said that their savings behaviour had not changed. Over half (57 per cent) said instant access accounts are now the best home for their cash. Four in 10 (43 per cent) felt that cash ISAs were now the safest place for their savings.

Richard Norman added: "In times like now, people need to be confident that their savings are in a safe place with a provider they can trust. Anyone who feels jittery about saving and wants peace of mind should look for a provider that offers them convenient and instant access to their money."

Instant Saver is available at all of the UK’s 14,000 Post Office branches, by telephone and online. Withdrawals can be made over the counter at branches and via Link ATMs, offering unrivalled choice and convenience.

Post Office Instant Saver guarantees to pass on all base rate rises in full until January 2010 and also guarantees to remain within 1.0% of the Bank of England base rate for the life of the account. Savers can make six free withdrawals a year with a flat fee of just £1 for any future withdrawals.

To find out more about Instant Saver, log onto postoffice.co.uk.