How much are the neighbours saving?

Mark Churchill 01 December 2015

Our savings habits in the UK seem curiously contradictory. We set ourselves savings goals that we say will make us happy – then miss them by less than £1 a day.

But that's just the national picture. Different regions of the UK show surprising variations. In some parts of the UK people seem to be saving more than they intend to. In other regions, perhaps unsurprisingly, we manage a lot less.

These findings come from research carried out by Skipton Building Society to promote their range of goal-focused cash savings accounts.

The research reveals something I think we're all inwardly keen to know: how much are the neighbours saving – and how does that compare to me?

The researchers asked people in different parts of the UK two questions:

  1. How much would you need to save each month to feel happy about your financial situation?
  2. How much are you actually saving each month?

Savings goals vs reality, region by region

Region Savings goal Currently saving per month Difference
Wales £193 £253 +£60
London £254 £214 -£40
North East £180 £200 +£20
East Midlands £174 £173 -£1
National average £194 £167 -£27
Yorks & Humberside £214 £164 -£50
South East £198 £158 -£40
Scotland £158 £153 -£5
East of England £167 £151 -£16
West Midlands £182 £147 -£35
North West £192 £141 -£51
Northern Ireland £170 £135 -£35
South West £193 £132 -£61

The happiest savers are found in Wales and the North East. Somehow in these regions people are saving more than they intended to. The reasons for this aren't disclosed in the survey. My guess is that because house prices in these regions are generally lower than the national average, people are less likely to be putting a large proportion of income into housing.

Londoners save the second‐highest amount per month, but it's not enough to make them happy. At £40 below their target, that puts them near the bottom of the league if you rank the table by difference.

Savers in the East Midlands are the most self‐disciplined, coming within just £1 of their goal. Savers in Scotland aim the lowest, with £158 a month their average goal. As for savers in the South West, the research suggests they're the unhappiest – or perhaps they're just carefree about the future.

Where to put your savings…

Looking at the figures in a more positive light, the researchers put the average amount we do save at just over £2,000 a year. And as we have seen in a recent article, if you harness the power of compound returns this can amount to a substantial pension pot over time.

Two golden rules for savings accounts

The first golden rule for savings is to keep at least three months' salary (or up to six months' household expenses) in an instant-access savings account, in case of sudden unexpected expenses. This is often called the “rainy day fund” and is a cornerstone of good financial planning.

Beyond that, if you're willing to lock your money away for longer, you can earn higher returns. Which brings us on to…

The second golden rule is that your savings have got to beat inflation. If the savings product you've chosen doesn't generate returns that are higher (after tax) than the rate at which the price of goods is rising, your money is shrinking in real terms.

Unfortunately, that rules out many of today's cash savings accounts as a long-term home for your savings. Over the last twenty years, CPI annual inflation (measured December to December) has averaged around 2.11%:

To beat 2.11% average inflation with instant-access cash savings, a basic rate (20%) taxpayer would need to find an account paying 2.64% interest before tax, and a higher rate (40%) taxpayer would need to find an account paying 3.52%. Thanks to the long-lived low Bank of England Base Rate (0.5%), rates such as these could be difficult to find at the moment.

So that leaves many savers looking for alternatives.

Three alternatives to cash savings

  • Can you overpay your mortgage? Most lenders will allow you to overpay up to 10% of the outstanding mortgage debt each year without penalties. Overpaying means that instead of earning interest directly on your savings, you save interest on your mortgage – with one benefit being that it takes income tax out of the equation.

    This guide explains how mortgage overpayments work so you can figure out whether this method would suit you.

  • Structured deposits are a type of investment product that offer a variable return over a fixed period. The structured deposits we feature on this site all provide capital protection under the Financial Services Compensation Scheme. Returns are variable based on stock market performance.

    Compare structured deposits here, or read this guide for more information.

  • A Stocks and Shares ISA allows you to invest in the stock market, while protecting your returns from Income Tax and Capital Gains Tax (CGT). The easiest way to invest is through a fund, in which your money is pooled with that of other investors. Visit our guide to choosing investment funds for more information. Remember that investing means exposing your capital to risk.

What are your thoughts on finding out what the neighbours are saving? Do you think you're saving enough? Tweet us @YourWealthUK