Cost of living pressures mean many households would struggle to cope with a sudden bill: recent research from the Office for National Statistics found that one in four (25%) adults would not be able to afford an unexpected but necessary expense of £850.
New research from LHV Bank suggests that even diligent savers may be more exposed than they think. The majority (57%) of savers with emergency money set aside could only cover three months of essential costs or less, despite almost three in five (59%) saving a dedicated emergency pot, meaning many people who believe they’re prepared could still run out of money within weeks of losing their income or facing a major repair bill.
Based on average UK household spending of £676.60 a week***, LHV Bank calculates that a fully funded three-month pot would need to be around £8,800, highlighting just how far many people’s current safety net falls short.
Across the UK there were also variations: the survey of 2,000+ savers, carried out on behalf of the digital bank by Censuswide, found that almost two thirds (64%) of savers in London have money saved to cover an emergency, followed by 63% of savers in Nottingham and Bristol.
At the other end of the spectrum, savers in Newcastle and Plymouth are more exposed should an unexpected bill land, with only 49% and 48% respectively having dedicated emergency savings.
Three steps to becoming an Active Saver
To provide a decent, lasting emergency pot, savers need to actively ensure that their savings are working hard by following these three steps:
- Check your rate. Find out what your savings are earning today. Many people are shocked to discover it’s 1% or less.
- Move your money. If your rate doesn’t beat inflation, switch to one that does.
- Make it a habit. Set a reminder to review your rate every few months and watch out for short-term bonus rates that quietly slip away. Check your balance AND your rate.
Alex Beavis, Interim Director of Banking, LHV Bank, said:
“Emergency savings are an essential part of financial planning. It’s all too easy for an unexpected expense to crop up, whether that’s car repairs, needing a new boiler or a job change which puts our household budgets under pressure. Having a savings safety net to turn to on those occasions is crucial, and it’s encouraging that many across the UK have some sort of emergency fund in place.
“But it’s not enough to simply set up a pot and believe your work is done. Our survey shows that the majority of savers with an emergency fund would struggle to cover three months or less of necessary expenses – and these are necessary costs, not even ‘nice to haves’, which really puts into perspective just how exposed people could be if the worst happened.
“Just as important as getting into the savings habit is making sure that you are getting a competitive return on the money you set aside each month. Too often savers are being hamstrung by providers offering substandard rates, taking advantage of savers’ expectation of a fair deal. Our advice to anyone without a safety net is simple: start now, even with a small, regular amount, and make sure that money is working as hard as possible by choosing an account that pays a consistently competitive rate. Being an Active Saver, and ensuring you get rewarded consistently for the money saved, means you’ll be far better placed to deal with those unexpected bills when they emerge, no matter how dramatic they may be.”
