During the pandemic, many of us saved more simply due to spending less. But now that things are back to normal – along with a cost-of-living crisis – money might be tight. How can you get into a savings frame of mind?
Due to the unusual circ*mstances of the Covid pandemic, UK household savings spiked during 2020 and 2021. With our normal economic activity slowing, as we weren’t going out much, many people were unable to spend on usual items such as holidays, leisure and eating out.
It meant the household savings ratio rose sharply (which is the percentage of disposable income that’s saved). With the end of Covid lockdowns, the savings ratio fell as people started going out and spending again.
If this trend continues, then savings are likely to continue to fall due to the cost-of-living crisis, with households seeing a fall in real income because of the rise in inflation over the past couple of years.
Many people are eating into their savings to meet the rising cost of food and energy bills, as well as everything else that’s become more expensive. So how can you get into a savings habit if yours need a boost? And how much should you have for emergencies?
Saving money for peace of mind
Saving money can be good for your peace of mind as well as your bank balance. There are many benefits to having savings, including feeling reassured that you’ve got some money in reserve in case the unexpected happens.
Start by working out how much you need for an emergency fund, which should cover three to six months of essentials such as rent and bills, if you can afford it. This will give you a good foundation on which to build your savings.
Saving money will probably involve making a few lifestyle changes, which could be for the better. For example, cutting back on spending on the things you don’t need could be better for the environment.
There are also some fun ways tosave moneyyou might not have considered before. Saving up for something specific could also bring personal satisfaction when you reach your target figure rather than putting it on your credit card.
Saving for a goal could keep you motivated
You could just be saving for a rainy day, but it’s great to have a goal you’re working towards because it could help motivate you to keep going. You might even decide to open a cash ISA, or, if you already have one, keep it topped up if you aim to reach the maximum allowance for the tax year (which is £20,000).
At the time of writing, the interest rate on cash savings is higher than it’s been for a long time at around 5%. It’s unlikely to stay this high, so it could make sense to take advantage while you can. That’s because central banks will want to cut rates to strike the right balance between growth and inflation if economic conditions improve.
Saving with the benefit of interest
You might be surprised to discover just how much of a difference interest rates can make to your savings over the long term. For example, how long could it take you to earn £500 in interest if your savings account paid 2% rather than 5% if you had a lump sum of £100, £1,000 or £10,000? We crunched the numbers:
How long could it take to earn £500 interest on your savings?
Interest rate 2%
- Starting amount: £100 = 81 years
- Starting amount: £1,000 = 21 years
- Starting amount: £10,000 = 3 years
Interest rate 5%
- Starting amount: £100 = 36 years
- Starting amount: £1,000 = 9 years
- Starting amount: £10,000 = 1 year
NB calculations assume interest is compounded monthly, that there are no withdrawals, interest rates remain the same and the tax position doesn't change. There aretax implicationson earned interestas you may benefit from the savings annual allowance up to £1,000, depending which income tax band you're in.
What these numbers show is that the more you can afford to put into your savings, the more you’ll earn in interest over time. Acash ISAis a great way to save because you won’t have to pay tax on any interest earned and you can still access your money when you need it – check first for any penalties charged or limitations on withdrawals from the account.
Getting up and running with a savings account doesn’t need a lot of planning. You can also help things along by setting some reminders and goals once you’ve looked at your budget. Eventually, you could find you’re earning interest on a healthy savings balance.
Looking for somewhere to keep your savings? Bank with Chase and you can open asaver account. Start saving with as little as you like, and we’ll calculate yourinterestdaily and pay it monthly.
18+, UK residents. A Chase current account is required to open a saver account.
Recommended reads
- Saving for a house deposit on under £40,000 a year
- Saving money doesn't need to be taxing
- 5 humble habits to help build serious savings
FAQs
For example, experts at Fidelity Investments recommend that you save: At least one times your salary by your 30th birthday. Three times your salary by your 40th birthday. Six times your salary by your 50th birthday.
What is considered a good amount to have in savings? ›
Rule of thumb? Aim to have three to six months' worth of expenses set aside. To figure out how much you should have saved for emergencies, simply multiply the amount of money you spend each month on expenses by either three or six months to get your target goal amount.
Is $20,000 a good amount of savings? ›
Depositing $20,000 in a savings account is wise when you have a plan for the money, such as a near-term expense or rainy day fund. For long-term goals, like retirement, you might be better served by opening a brokerage account or certificate of deposit (CD).
What is a reasonable amount of savings? ›
Put 20% of your income into savings
To help you stay on track, it's always good to have a savings goal — something to aim for.
Is $5,000 enough for savings? ›
The FDIC recommends keeping at least six months' expenses in an emergency fund. While $5,000 in savings is nothing to scoff at, it probably isn't enough for most people to meet that criteria.
Is having $100000 in savings good? ›
Having $100,000 in your savings account is an impressive achievement, and it's far more than what most people have saved. The median savings account balance is $1,200, according to a study last year by The Motley Fool Ascent.
How much is too much cash in savings? ›
How much is too much? The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.)
How many people have $20,000 in savings? ›
Other answers revealed that 15 percent had between $1,000 to $5,000, 10 percent with savings of $5,000 to $10,000, 13 percent boasted $10,000 to $20,000 of cash in their bank accounts while 20 percent had more than $20,000.
How much does Dave Ramsey say you should have in savings? ›
Ramsey's general recommendation in his Baby Steps has long been to start with having $1,000 saved in a starter emergency fund. If you earn under $20,000 a year, the post on Ramsey Solutions said you may adjust this amount to $500.
How much does the average middle class person have in savings? ›
Income Level
| Income | Average Savings Account Balance |
|---|
| 20 to 39.9th percentile | $16,410 |
| 40 to 59.9th percentile | $25,200 |
| 60 to 79.9th percentile | $44,070 |
| 80 to 89.9th percentile | $76,940 |
2 more rowsAug 8, 2024
How many Americans have $100,000 in savings? About 26% of U.S. households had more than $100,000 in savings in retirement accounts as of 2022, according to USAFacts, a nonprofit organization that analyzes data from the Federal Reserve and other government agencies.
What amount of savings is considered wealthy? ›
Schwab's survey showed Americans' conception of being rich means having a net worth of $2.2 million. This number represents a $300,000 increase from the survey's results last year. Additionally, statistics show that the top 2% of the United States population has a net worth of about $2.4 million.
Is 100k too much in savings account? ›
While reaching the $100,000 mark is an admirable achievement, it shouldn't be seen as an end game. Even a six-figure bank account likely won't go far enough in retirement, which could last as long as 30 years.
How much should I realistically have in savings? ›
Standard financial advice says you should aim for three to six months' worth of essential expenses, kept in some combination of high-yield savings accounts and other liquid accounts.
How can I double $5000 dollars? ›
How can I double $5000 dollars? One way to potentially double $5,000 is by investing it in a 401(k) account, especially if your employer matches your contributions. For example, if you invest $5,000 and your employer offers to fully match at 100%, you could start with a total of $10,000 in your account.
How much cash should you keep at home? ›
In addition to keeping funds in a bank account, you should also keep between $100 and $300 cash in your wallet and about $1,000 in a safe at home for unexpected expenses. Everything starts with your budget. If you don't budget correctly, you don't know how much you need to keep in your bank account.
How much should a 30 year old have saved? ›
If you're looking for a ballpark figure, Taylor Kovar, certified financial planner and CEO of Kovar Wealth Management says, “By age 30, a good rule of thumb is to aim to have saved the equivalent of your annual salary. Let's say you're earning $50,000 a year. By 30, it would be beneficial to have $50,000 saved.
Is having 10k in savings good? ›
Bottom line. Saving $10,000 is a great financial head start, and putting that money to work can help you grow your wealth even faster. There are numerous ways that you can deploy that money to help yourself in the future.
Is $50 000 in savings good? ›
But if you're aiming for a five-month emergency fund and your essential bills come to $10,000 per month, then you're right on track with a $50,000 balance. Similarly, a savings account is a great place to put money you're stashing away for a near-term goal.
