Choice of savings account is costing British families millions

New figures from HiSAVE – the online savings brand from ICICI Bank – reveal that Britons plan to borrow more than they save and invest this month – and the majority of those that are saving money have little idea if they are getting a good rate (53%) or whether their hard earned money is in the right place.

At a time when the economic crunch and interest rate cuts have triggered widespread concern over the financial health and economic confidence of consumers, the HiSAVE team commissioned nationwide research to give a rounded picture on the current state of family finances. The HiSAVE research asked more than 2,100 adults how much money they planned to spend, save, invest and then to borrow for the month of February. The findings are some of the first up-to-date figures to shed light on true disposable income levels across the UK; how families allocate their income and balance pressures to spend, save, invest and borrow.
Disposable income for the month

True disposable income breakdown established: Monthly income in the UK after the mortgage and essential bills have been paid left the average Briton with £545.20 disposable income for the month. On average 45% of this would be spent on living and socialising, 42% would be saved and 13% would be invested. Whilst disposable income levels varied across the UK, the proportionate break-down of this between spending, saving and long term investing (including pension payments) remained surprisingly consistent (see table 1 in notes to editors).

Short term security over long term risk: In most instances, people are planning to put more money away this month than they intend to spend (54% compared to 45%). When it comes to building up a rainy day fund, though, Britons are far more likely to opt for the relative security of short term savings over long term investment – savings accounting for 76% of all funds to be put away for a rainy day this month.

Region wide savings take-up: With widespread job cuts spanning most UK sectors, the public have clearly recognised the importance of saving money – and across all regions at least 40% of consumer monthly disposable income is being put into savings accounts.

In the dark on savings rates. A major concern from the HiSAVE research, however, was evidence that those saving money this month could be getting poor value for their savings. When savers were asked what interest rate they were getting for their savings, 53% said they had no idea and of those that did know, one in two (48%) said they were getting an interest rate of 2% or less, whilst a staggering 17% acknowledged they were earning 0.1%. In addition, a large number of people were sticking with high street deposit accounts, rather than hunting round for the better deals available from direct savings brands (those operating via the telephone or Internet).

Heavy reliance on top-up borrowing: Set against analysing how people planned to allocate their income between spending, saving and investing, the HiSAVE research also asked the public how much money they planned to borrow this month (borrowing here clearly defined as money spent/owed on credit cards, personal loans or a bank overdraft – not mortgage payments). The findings revealed that, on average, Britons planned to borrow £357 - or the equivalent of 65% of their total disposable income this month. From this additional data, the picture emerged of a nation keeping savings and debt quite separate, borrowing quite confidently yet putting up with poor rates for the money they planned to save. (See tables 2-4 in notes to editors for more data on debt levels)

Demographic analysis

A gender wealth divide gets wider: The HiSAVE research revealed that men enjoyed a much bigger monthly disposable income (£644 compared to £427) and they were able to put almost twice as much money a month into a savings account than women (£294 compared to £155). As a result, the average level of planned borrowing for women accounted for a much higher proportion of their disposable income – £385 or 90% (compared to £328 or 51% for men).

Regional analysis - sinking in the south: For many years it has been assumed that London and the affluent South East enjoy far greater affluence than people elsewhere. The new HiSAVE data dashes this assumption. Higher living costs mean that people in the South have the smallest monthly disposable income, and whilst people in all regions manage to save proportionately the same amount for a rainy day, it is people in the South and London that rely on heavy borrowing to maintain their aspired lifestyles. The HiSAVE data suggests that families in Scotland are those enjoying the most rounded financial health at the moment. They save the most proportionately and have, by some way, the lightest reliance on consumer credit (see table 5 in notes to editors).

Age group analysis - crisis hits for mid lifers: People aged between 35 and 44 -probably those with young families, big mortgages and for some school fees – are those struggling the most. Each month they spend less than age groups either side of them, they can allocate less than 10% of their income into family investments and they are the group closest to matching their disposable income with borrowing pound-for-pound (they will borrow the equivalent of 88% of their monthly income this month). The over 55s also have high exposure to debt but they are also the generation saving the most – 47% of their monthly resources. A likely boom in savings also seems to be occurring with the very youngest age group. 18-24 year olds are the group traditionally associated with having a very relaxed attitude to debt, although the new HiSAVE data suggests saving is now much more prevalent with this age group, with 39% of total monthly disposable income now going into a regular savings account.

Deepak S.Varghese, Head of Retail Banking and HiSAVE at ICICI Bank UK Plc commented: “Millions of Britons are coping with the economic uncertainty by adopting parallel strategies to saving and spending. Many are keeping their spending and short term debts in a separate pot to their rainy day fund and, as Britain continues its move further into recession, it is likely that more people will want to build up an emergency savings fund to protect their homes and family during uncertain times.

“Whilst encouraged by the news that millions of people plan to save regularly, we are alarmed that so many people fail to shop around for a better rate to ensure their hard earned money really works hard for them when saved. The good news is that despite the recent base rate cuts, HiSAVE is one of a number of savings brands bucking the high street trend by maintaining good rates in a low interest environment.

“Now more than ever it is very important to get a good rate of return on your savings. People can take advantage of our HiSAVE accounts which are aimed at giving UK savers simple savings accounts that offer consistently high returns. Being FSA regulated and FSCS protected, we strive to offer safe and secure savings accounts. We offer people across the UK a better way to save.”