Savings on the rise despite tough times

CAREFUL savers have managed to boost their bank balances to the highest levels in nearly two years despite the tough economic climate, according to a new report.

The average saver now has £1,858 in the bank – an increase of 18 per cent compared to the previous quarter, according to the ING Direct Consumer Savings Monitor.This is the highest typical savings balance since the second quarter of 2010, when people had around £2,050 put away in accessible savings, the study said.

Savers have struggled amid three years of record low interest rates to find accounts that will give them a real return on their cash, while high household bills have given them little money left over.

But careful spending by consumers, with a determination to pay down their debts, has been one of the key reasons driving the savings recovery, the report said. Levels of unsecured debt, which includes credit cards, loans and overdrafts, have also remained stable at an average of £2,242, a modest £18 rise over the last three months.

ING Direct chief executive Richard Doe said: “Our research told us that ordinary Britons saw restoring savings as their top financial priority for 2012, but in the current climate we thought it would be tough for them to deliver on this.

“Six months of relatively restrained spending may not have helped the economy in terms of GDP growth, but it has allowed Britons to deliver on their determination to restore their savings.”

The internet based bank said people receiving payouts because of mis-sold PPI was a factor. More than four per cent of the savers surveyed said they had either received or expected a PPI compensation payout this year.

Around a third said they would put the payouts into savings while 42 per cent said they would use them to pay off debts.

The latest figures also mark the first time there have been two quarterly rises in savings in a row since 2009, according to the study.

Howard Archer, economist at Global Insight, said while high levels of savings showed people were being prudent, there were disadvantages for the economy if people were spending less.

“While it is not a good thing for the economy if people are not spending enough but saving, it is equally worrying for the economy if people’s spending is being fuelled by taking on a lot more debt,” he said.

“The ideal situation would be if those people who can afford to spend do so and help the economy return to growth, while those people who are financially stretched try and reduce their debt levels.”

About 1,000 savers take part in the regular study by ING Direct.