Amount household saves has halved

The typical proportion of income saved by households has halved over the last 40 years, according to research.

Lloyds Bank found that households saved around 9.9% of their income between 1974 to 1984, against a backdrop of rising interest rates which reached double digits for the first time in 1979.

But following five years of the Bank of England base rate sitting at its historic low of 0.5%, households are now saving around 4.8% of their incomes.

In 1980, households were putting a peak of 12.3% of their incomes away, but the savings ratio declined rapidly during the noughties decade, fuelled by rising levels of consumer spending and borrowing.

Lloyds said that low interest rates helped to reduce "the perceived need for households to hold precautionary savings".

The average savings ratio fell to a low point of 2.2% in 2008, before heading back on an upward path.

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The savings ratio is based on the total income that is not spent by households, when can be saved into the bank or put into pensions and shares.

Lloyds took its research from Office for National Statistics (ONS) and Bank of England data.

It also found that the typical value of savings per household including cash deposits and pensions had increased five-fold over the last 40 years to reach £126,278.

In 1974, cash deposits accounted for more than half (53%) of households' total savings, but by 2014 this proportion was closer to one third (38%), as the share of pensions as a proportion of total savings has increased over the last 40 years.

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Yesterday, it emerged that two members of the Bank of England's monetary policy committee (MPC) had voted for a 0.25% hike in interest rates, in the first split vote seen on rates since 2011, fuelling further speculation over the prospect of an eventual rise in interest rates.

Andy Bickers, savings director at Lloyds Bank, said: "There have been substantial rises in the total amount of savings by households as the country has become richer and the population older.

"However, the proportion of income saved by households has halved, with less being held in cash savings than in the past.

"Getting into the savings habit early will help the younger generations to have a more secure financial future."

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