According to NS&I’s Saving Survey, the amount of money the population is saving has decreased to its lowest level for over two years. On average, Brits are now setting aside only 6.25% (£81.94) of their monthly take-home income.*
Is this because people are choosing to pay off their debts instead?
Perhaps. With savings interest rates so low at the moment, it’s likely the interest rate you’re paying on your debt is far higher than what you’re receiving on your savings and so it would make sense for most people to put any spare cash towards reducing debt, as opposed to earning very little putting it in a savings account.
£1000 in a savings account at 2.5% will earn you £25 after tax
£1000 of credit card debt at 18% will cost you £180 in interest
So, by paying off your debt with the savings, you’ll be £155 a year better off.
However, what happens if an unforeseen expense crops up? Would you be able to access the cash should something unexpected happen? It is always reassuring to know that you have a small nest egg should you need it, but evaluate your own circumstances – only you will be able to decide whether it is more beneficial for you to pay off your debts or keep some money in your savings account for a rainy day.
If you’re in serious debt and need to speak to someone, contact us today.
* Credit Action – July 2010