Savings level on rise despite poor interest rates

SAVINGS levels are on the rise in Scotland as households batten down the hatches and build up their rainy day funds, a report out today reveals.

More people are putting money aside even as the cost of living continues to climb, while the average amount saved is also going up, according to the latest quarterly savings survey from NS&I.

The government-backed savings provider said people were saving both towards specific goals and also to boost their household finances. However, the efforts of savers are being undermined by the failure of banks to offer more competitive interest rates. The average rate on savings accounts has fallen in recent months, with no conventional accounts helping savers combat inflation.

Scottish savers are setting aside £103 a month on average, up from £94 last summer and the highest in two years. The typical amount saved equates to 7.68 per cent of disposable income, NS&I found, compared with a UK average of 8.09 per cent.

The average amount being saved each month across the UK as a whole is the highest recorded since the survey began in 2004, said NS&I. Just a fifth of adults in the UK say they aren’t saving any money each month, down from a quarter just three months ago.

One in four Scottish savers is putting money aside with a particular goal in mind, from saving for a mortgage deposit or repaying a mortgage to creating a savings pot for a holiday or a special 
occasion. Another one in four is saving so they have something to fall back on in the event of an emergency. Savers aged 25 to 34 are squirrelling away an average of 9.29 per cent (£125) of their income each month, the highest of any age group.

John Prout, retail customer director at NS&I, said: “It is really good to see the average amount saved per month has risen over £100, especially as the cost of Christmas can often be felt for some time after.

“The research suggests that most age groups in Britain are saving more, and this corresponds with an increased use of savings goals from last summer, which can only be an encouraging sign for the future.”

But a decline in the interest rates offered means that many of those saving in cash accounts each month are losing money in real terms, with inflation wiping out their gains.

Savers have been hit hard by the launch last summer of the Bank of England’s funding for lending scheme (FLS) which, by giving lenders access to cheaper finance, reduce their dependence on customer deposits.

With less incentive to offer eye-catching rates, banks and building societies have slashed their best deals. The average cash Isa pays just 1.85 per cent, down from 2.45 per cent when the FLS began, according to Moneyfacts

William Hunter, director of Hunter Wealth Management in Edinburgh, said: “It’s natural for savers to try and cut back and build a more secure nest egg to protect them. The problem is that banks are taking huge advantage from the situation. They are lending less, but are still achieving massive returns on much bigger margins and their savers are paying for these massive profits with pitiful returns on their savings.”

Savers hoping to beat inflation suffered a further blow last week when NS&I announced that its index-linked savings certificates are unlikely to be made available during the 2013-14 tax year, due to funding target constraints.