Having decreased to 6.6% in Q2 2022, the average household savings ratio has risen steadily to 11.1% in Q1 2024, data from the Office for National Statistics (ONS) has revealed.
According to findings from its latest Households’ finances and savings report, these ratio increases coincided with cost-of-living pressures, weak consumer confidence and slower growth in household consumption.
The report estimated that the total value of excess saving accumulated by households since the start of the pandemic range from £143bn to £338bn – about 7.9% to 18.7% of household annual total resources.
In addition, findings revealed that households have been reluctant to spend these accumulated savings, unlike in the US where it has been an important factor in supporting household consumption and economic growth.
Myron Jobson, senior personal finance analyst at interactive investor, said: “The return of the high interest rate environment following 14 consecutive interest rate hikes, which dragged savings rates out of the post-credit crunch doldrums, is undoubtedly a significant factor behind the reprieve in household savings.
“It might also be a case of people learning from financial hardships experienced in recent history.
“The harsh reality of income loss and economic instability during the Covid-19 pandemic served as a stark reminder of the perils of lacking adequate savings.
“The ensuing cost-of-living crisis has underpinned the need for financial resilience in an unpredictable world.
“However, holding onto extra savings will be a challenge for many. Higher prices still weigh heavily on many households – not least those who haven’t experienced an uptick in income.
“Homeowners coming off fixed-rate deals are heading for a sharp increase in monthly mortgage payments, which, in many cases, will force them to allocate a larger portion of their earnings toward housing costs, leaving less room for savings and investments.
“As ever, it remains important to maintain a rainy-day fund. Holding three to six months’ living expenses in cash is a good rule of thumb.
“Those with a healthy rainy-day fund and who can afford to put money away for at least five years or more should consider investing for the potential of long-term inflation-beating returns that far outstrip savings rates.”
