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Savings accounts taking a bashing as households feel the squeeze

01 October 2008 / by Rachael Stiles
Family finances are forcing hard-up households to raid their savings, causing deposits in savings accounts to fall to their lowest level for half a century.

Not since Harold McMillan was Prime Minister in the 1950s has the UK's savings pool been so dry, research from the Office for National Statistics has revealed, as families run down their savings accounts to keep up with the soaring cost of living.

The savings rate, which monitors how much earners set aside, fell the wrong side of zero to minus 1.1 per cent in the first quarter of 2008, compared to the last three months of 2007, when it was 1.8 per cent. It has shown little sign of recovery since the beginning of the year.

The dwindling amount that people are saving is a reflection of higher mortgage rates, food prices and fuel bills, combined with wages which are failing to keep pace with inflation. Brits earn an average of £1,250 a month, but their outgoings exceed their income by an average £13.66 a month, forcing them to dip into their savings.

In the second quarter of 2008, the average person saved just £16, and retail figures have also fallen as households find they have no spare cash to spend on non-essentials. Total consumer spending fell £250million in the three months to the end of June.

In addition to bleeding their savings accounts dry, there are also fears that consumers are having to borrow in order to keep afloat through the current economic storm, and things are not expected to improve in the short term as some analysts predict a full-scale recession by Christmas.

However, it is hoped that lessons will be learned, and that, once conditions in the economy improve, the 'buy now-spend later' society which has run rampant in recent years, will be replaced with a philosophy that practices tighter lending controls.

It's a savers market for those who are lucky enough to have money to save in these tough financial times. They are benefiting from a competitive savings account interest rate war being waged by banks as they reign in risky lending and try to draw in more deposits.

Industry experts recommend that consumers compare savings accounts to find the best place to make their money go further.

© Fair Investment Company Ltd