Money News
Britain's savings have nearly doubled since the turn of the millennium, with balances up £426 billion - five times the increase in unsecured borrowing (£79 billion). This trend is likely to continue according to Alliance & Leicester Savings, with over a third (39%) planning to increase their savings balances over the next five years.
Ewan Edwards, Head of Savings at A&L comments: "If current growth continues, then in the next five years personal cash savings could grow to around £1 trillion.
"We are also seeing big changes in the types of accounts favoured. Five years from now Britain's savvy savers are likely to have over a third of their cash savings in tax efficient accounts such as ISAs - a massive increase from five years ago, when just a seventh (14%) were sheltered from the tax man in this way."
Only 2% of people think saving is unnecessary and that one should live for today. In contrast, 39% of people feel saving is necessary for their financial future - the under 35s believing this most strongly.
But worryingly, one in four people (24%) have no savings at all, with three quarters of them saying the main reason for not having any cash savings is lack of spare income. Meanwhile, 12% feel they lack the discipline to save.
As Professor Merlin Stone of Bristol Business School puts it: "Today, we have a savings paradox. Households appear to be stretching themselves to meet increased taxation and a general rise in the cost of living.
"However, perhaps surprisingly, overall savings balances have continued to increase. It seems that the pressure has fallen on pension contributions. Evidence suggests that people in their prime years are saving more cash with a view to funding their retirement."
The A&L report, 'The Changing Face of the Savings Market', has found that there have been big changes in the ways in which people save - driven by factors such as the growth in internet usage and price comparison websites.
Instant Access accounts have grown in popularity - more than half of the nation's cash savings are in this type of account now with the average account balance up 60% to over £5,000.
And cash ISA balances have more than doubled in the same period (up 124%), now accounting for a fifth (21%) of all cash savings.
In contrast, balances in Notice Accounts have fallen by 50% and these now make up just 8% of the market, compared to nearly a quarter (23%) five years ago.
Another new trend is the development of 'disciplined' savings accounts. Given many savers dip into their savings, the aim of these accounts is to discourage dipping - but at the same time allow instant access, should funds be required in an emergency. A&L research shows that nearly one in five (18%) dip into their savings but never put the money back.
Regular Savings accounts also encourage disciplined saving, as a set amount is saved each month over a set period of time. Although they make up just 2% of the savings market in terms of balances, the number of accounts has grown considerably.
The next few years are likely to see the death of the Notice Account with virtually no new accounts being opened and balances falling dramatically. These balances are likely to be increasingly invested in better value Instant Access accounts.
Meanwhile, the Internet will carry on making a big difference, with 40% of cash savings managed online - four times the amount five years ago. And Internet comparison sites are likely to grow in influence, making it easier for people to shop around to get the best rates.
06 November 2007 © Moneyextra.com
Moneyextra.com recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.