Low-income families defy income squeeze and bad banking services to save most money

The UK’s lowest paid and youngest earners are beating wealthier families to their savings goals, despite poor service from banks and building societies, and a toxic mix of high inflation and ultra low rates.

With government urging consumers to put more money aside for economic uncertainty and a long retirement, the latest research has found that Britons are saving an average of 8 per cent of their pre-tax income every year – around £1,800, or £150 a month.

But more 18 to 24-year-olds than any other age group are sacrificing the finer things in life in a bid for financial security.

They may not be saving much – around £1,160 a year – but that equates to around 10 per cent of their pre-tax income, at a time when they are likely to be more focused on careers and education, says specialist bank Aldermore.

Three quarters of the under-25s regularly set money aside, compared with less than 70 per cent of adults nationally. But the lowest paid are saving the largest proportion of their income – around 15 per cent, for those on £10,000 or less a year.

Londoners are the top regional savers, setting aside an average of £2,990, or 10 per cent. But West Midlanders, also setting aside 10 per cent, earn £11,000 less on average (a typical £19,700) than their counterparts in the capital.

In Wales, where people earn around 60 per cent less than Londoners, they are still managing to save 8 per cent of their income: £1,429 a year.

In fact, overall British savers earning £40,000 or more are saving 10 per cent of their salary, and yet low earners are setting aside 15 per cent.

But at a time when wages are failing to keep up with the cost of living, most people worry that they don’t save enough, regardless of how much they set aside.

This week may have seen the rate of inflation as measured by the Consumer Prices Index (CPI) drop from 2.9 per cent to 2.6 per cent, but UK workers are still struggling with falling real wages.

“There’s no escaping the fact that inflation is having an impact on our daily finances. A fall may be temporary relief for consumers, but it will take a while to fully recover from months of growing prices and ultimately it’s still creeping upwards,” says Jo Darbyshire, commercial director at Avalon.

“High costs simply mean that the money in our banks and pockets will unfortunately buy you less. This makes it vital to have a plan to stay in control of household spending and, most importantly, ensuring you have a safety net should you face any unexpected financial shocks.”

Brits are urged to have at least three months’ worth of salary as an emergency fund for short-term needs. Pension savers are advised to set aside 12 per cent of their salary for retirement if they hope to match their current standard of living.

“Although almost a third of the population currently does not save anything at all, for the majority, the savings message is resonating, despite the low rate environment over recent years,” notes Simon Healy, managing director of savings at Aldermore.

And those that are managing to save have shrinking options if they want to beat inflation, with no easy access to savings accounts or one-year bonds offering a real return. The surprise fall in inflation is also pushing an interest rate increase into longer grass.

Indeed, Brits feel overwhelmingly let down by both the rates and services on offer by their bank. Just one in 10 think their bank offers a good service or a fair deal, according to research from TransferWise, but a lack of alternatives means only half are considering switching, and most Brits have been with their current bank for a decade or more.

With the lack of faith in banks apparent – 20 per cent of British people would happily never use a bank again – tech companies are set to become the financial service provider of choice for British consumers in the future.

A quarter of British people expect to switch to tech companies for at least 50 per cent of their financial needs within five years, including traditionally core banking services. 53 per cent say they can envision using a tech provider for their current account: 44 per cent for their savings account and 38 per cent for their credit card.

“People’s loyalty to their banks has not really been out of choice but out of necessity. But now as new financial services companies emerge … banks are going to have to adapt or they will become extinct,” says Taavet Hinrikus, CEO of TransferWise.

“Instead of focusing on their own needs and profits, they have to focus on what customers need. If they don’t, they’ll see their customers vote with their wallets.”