New data reveals how the cost of living crisis is impacting savers, and many are opting to break open their piggy banks to cope with rising costs.
So, to what extent are people having to access their savings pots? And what can you do to limit the impact of soaring bills on your finances? Let’s take a look.
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What does the data reveal about the cost of living crisis?
According to Tesco Bank, savers are withdrawing an average of £188 each month in order to cope with the cost of living crisis. This means many will see their savings deplete by roughly £1,416 should this trend continue over the next 12 months.
For those in their 20s and 30s, the typical monthly sum withdrawn was a slightly lower £123.
Tesco’s data also reveals that 68% of those who budget their spending need to access savings in order to make it to payday. Meanwhile, 10% of those in the survey say they regularly have to withdraw money from their savings.
According to Gail Goldie, product director at Tesco Bank, the cost of living crisis is leaving many with no choice but to dip into savings. She explains, “Life is getting more expensive and it is putting pressure on incomes and the budgets that keep our spending on track. This is leaving many with no option but to dip into savings to make it through to the next payday, and the dent can be significant.”
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How can you protect your savings amid the rising cost of living?
Here are three steps you can take to limit the impact of the crisis on your finances.
1. Get the highest savings rate you can
While you may have little choice other than to dip into your savings this year, it’s always a good idea to ensure anything you have left in savings is earning the highest interest rate possible.
Tesco’s Gail Goldie explains why this is important: “This increase in the cost of living shows little sign of slowing down and this is why, especially at the moment, people should ensure their money is working the hardest it possibly can.”
Right now, you can earn 0.75% AER variable interest in an easy access savings account.
Importantly, easy access accounts allow you to deposit and withdraw cash at will, so they can be a good option if you want the flexibility to dip into your savings in the future. For more options, see The Motley Fool’s top-rated savings accounts of 2022.
2. Create a budget
Creating and sticking to a budget is often easier said than done. That said, a budget can make it a lot easier to identify the areas where you typically overspend.
Of course, even if you do make a budget, rising costs may leave you unable to stick to it. Nevertheless, a budget can still help you become more disciplined with your cash.
For help, take a look at our article that explains how to budget your money wisely.
3. Cut existing costs as much as you can
A number of factors impacting the rising cost of living can’t be avoided. Higher energy and petrol prices, for example, are beyond our control. However, it’s worth trying to cut costs wherever you can.
For example, if you’re a motorist, it’s vitally important to check your current car insurance premium. That’s because by comparing quotes from a number of providers, you may be able to find a cheaper deal. The easiest way to do this is to use a comparison website, such as MoneySuperMarket. See how to compare car insurance for more comparison services you can use.
Another area to compare costs is home insurance. Again, premiums can vary widely between providers, so take the time to compare home insurance providers to ensure you aren’t overpaying.
Aside from insurance, if you’re a homeowner, also check whether you can cut the cost of your mortgage. For example, if you’re on your lender’s standard variable rate or your fixed term is coming to an end, compare the top-rated mortgage deals to see if you can get yourself on a lower rate.
Looking for more money-saving tips? See The Motley Fool’s latest personal finance articles.
