Emergency expenditures could trigger financial time bomb

A quarter of people in Britain have little or no money set aside for emergency situations, according to research by online bank Egg.

And what's more, over half of all working Britons (52%) do not have sufficient savings to support their families were they to find themselves out of work, even if only for the UK's average redundancy period of four months.

Even after cutting out any of life's luxuries, people say they would need almost £1,077 each month just to meet debt repayments and pay essential bills such as utilities and food. Of the half who claim to have inadequate cash savings, only an extra one in 20, just 5%, have access to other longer-term savings that they could live off if they suddenly found themselves out of work.

Unforeseen circumstances

Egg's research also investigated the likelihood and cost of the most common ‘unforeseen circumstances', which require a lump sum of emergency savings. The findings show that more than two thirds (69%) of Britons have in the last ten years needed a cash injection to cover an unforeseen expense and a third of Britons have found themselves in this situation more than once, with repairs to the family car being the most likely.

It is of no surprise that these expenses cannot be budgeted for out of monthly salary, as on average they cost Britons £2,282.

Tobias van der Meer, Head of Consumer Banking and Investments at Egg said: "As a rule of thumb, it has long been considered sensible for families to have cash savings of at least three months income, for any of life's emergencies. However, our research highlights that far from being a precaution, these savings are a necessity, with two thirds of people likely to need quick access to a lump sum as an emergency.

"The best way to ensure a savings pot goes as far as possible on any emergency is to make certain the deposit account pays a high rate but also allows easy access."