How the high-inflation, high-interest environment has influenced UK savings habits

Despite a promising drop in inflation according to the latest CPI statistics, the cost-of-living crisis is far from over for most Britons. The Bank of England continues to promise interest rate hikes, while food inflation and high energy bills are keeping essentials expensive.  

Balancing a budget has become increasingly challenging due to the rising cost of living, and it's no surprise that people are finding it tougher than ever to put money aside. This is concerning as saving is a key part of improving financial well-being – having a nest egg can shield savers from unexpected expenses and life events, like home repair or sudden loss of income. 

To learn more about how people are managing their money in the current climate, Chetwood Financial commissioned an independent survey of over 2,000 UK adults, gathering insights about their saving habits and how they are leveraging different financial products and services to manage their money in the face of economic challenges.  

Savers feeling the pinch

Despite the various challenges consumers are facing, our research shows that many are still working hard to balance their books and put money aside wherever possible. According to Chetwood’s research, 15% of people have made paying down debt a greater priority over saving money due to the higher interest rates and an increase in the cost of credit. Meanwhile, frugal budgeting has become increasingly common amongst the same number (15%) of consumers – no great surprise. 

It's safe to say that right now, many would-be savers are feeling the pinch. While a troubling 40% of respondents said they didn’t have enough money to put away savings each month, one in five (20%) have had to dip into their savings, using up some or all their reserves to accommodate for cost-of-living increases. Not only is this an alarming impact given the relative difficulty of refilling those savings in the current environment, but almost a third (32%) shared that the fear of losing their job was a significant source of anxiety as well. Combine these figures, and we have a worrying number of people without a savings buffer. For these people, an uncertain future, or lack of income or employment, has the potential to plunge them into a precarious financial situation or even poverty and debt.

According to our research findings, the largest proportion of savers (14%) hold between £1,001 and £5,000 in savings, but a similar number (13%) of those surveyed said they had less than £100 stored away for the future. Those in the lowest bracket stand at the greatest risk of financial turmoil.   

The key to better money management

The forecast for many is grim – but they’re not without options. Skilful money management and effective use of financial products and services can give consumers greater breathing room and the ability to change their financial well-being for the better. 

According to the survey, the overall uptake for different savings products was surprisingly low. While 96% had at least one current account - which in isolation paints a positive picture for the progress of financial inclusion within the UK - comparatively few were leveraging multiple accounts or savings products to maximise their use of the available benefits.  

While challenger banks and neobanks have earned a greater market share in recent years, they don’t seem to have had a noticeable impact on consumers adopting secondary savings products in tandem with their primary accounts. Of those surveyed, 56% said they didn’t hold a monthly savings account, 82% had no lifetime ISAs for later-life planning, and the proportion without fixed-rate bonds (77%) and stocks and shares ISAs (73%) were all high. 

There seems to be a lack of awareness of the potential benefits of harnessing multiple products – only 35% of those surveyed agreed that having multiple savings accounts from different providers can help them save more effectively towards their goals. In this climate, it’s vital that all financial institutions are effectively championing the potential benefits of different savings products and platforms to ensure that consumers are more proactive and better-informed when it comes to their saving strategies.

For those in a position to put money away each month, capitalising on the high-interest environment is vital to bolster savings buffers and mitigate the effects of inflation on savings. Although there are few silver linings to be found in the midst of a cost-of-living crisis, one benefit is that savers can access to much higher interest rates on savings products by looking beyond mainstream banks. 

Beyond traditional banking services, there are additional measures that consumers can take to bolster their finances. Many providers now provide their customers with the ability to ‘round-up’ purchases and save money towards various short-term goals by using savings pots. Likewise, customers may be able to access exclusive rates on savings account by switching their current account over to a different provider – a move that only 6% have taken so far, according to Chetwood’s research.

Help for those in need 

Sadly, no matter how well individuals manage their money, there will always be some who are unable to save anything at all. For those who are struggling financially, there are public services and charities out there that can make a big difference to those in need. 

Just as with leveraging savings products, financial institutions can play a valuable role in supporting consumers in financial difficulty, or at the very least can connect people who are struggling with organisations that can make a difference. Offering personalised support and financial advice can improve consumers’ financial literacy and reduce the likelihood of people falling into greater trouble.

Organisations like the National Debtline, Citizens Advice and StepChange Debt Charity can help consumers to restore their financial health, and financial institutions can help redirect those in need to them.  

Darkest before the dawn

In the present economic climate, it's not easy to see so many consumers struggling to manage their money and save towards their future goals. While these figures are eye-opening, behind them are individuals grappling with forces beyond their control – many without support or guidance. 

Taking advantage of the tools and strategies available, including financial management apps, careful financial planning, debt reduction strategies, expense trimming, and leveraging different savings products, has never been more important. Consumers must do everything within their power to enhance their circumstances and shield themselves from unforeseen expenses or job instability.

With the right support, consumers can reach a brighter financial future, but this requires greater awareness of the tools available. I only hope consumers gain the opportunity to use these to their benefit with the help of a diverse range of financial institutions.