More than a third of consumers would be in debt within a month of being made redundant, new research from AA Financial Services has revealed.
The research found that 36% of consumers said they would be in debt within one month of an unexpected lifestyle change, such as losing their job, while this increased to 51% of consumers who rent. James Fairclough, director of AA Financial Services, believes consumers need a safety net of savings to stop them going into the red when unexpected events happen. He said: “It’s concerning that so many people in the UK would not be able to maintain their lifestyle and provide for their families beyond a month should their circumstances change suddenly. This safety net is an essential part of being able to plan and stay on top of finances, and is key to minimising any anxieties people may have about their future.”
With providers continuing to offer savers low rates, which can be as low as 0.05% on some easy access accounts , there has not been a huge incentive for consumers to save over the last few years. Still, many consumers are still planning to save more this year with the AA Financial Services research stating that 36% of consumers had the intentions to save more this year than in previous years. To help them save more, one in four (27%) of consumers said they would be cutting back on luxuries and one in five (20%) want to get rid of their credit cards.
The general advice is that consumers need three to six months of their income put away in an emergency savings fund to fall back on if sudden lifestyle changes happen. As savers will need to access this money quickly, while also likely needing to contribute regularly to get their savings to the suggested amount, an easy access or short-term notice account is often the best choice.
The highest rate in the easy access savings chart currently comes from Ford Money, which pays 1.35% gross on anniversary on its Flexible Saver, however this account is only available to existing Ford Money customers. Both Marcus by Goldman Sachs® and SAGA offer the next best easy access rate of 1.34% gross monthly. Marcus by Goldman Sachs® pays this on its Online Savings Account. Although no deposit is required to open this account, a UK mobile number is needed. SAGA pays this gross rate on its Saga Easy Access Savings Account, which includes a 0.20% bonus for 12 months, and requires a £1 minimum deposit to open. Both these accounts allow unlimited further additions and withdrawals. They can both only be opened online and then managed online and by phone.
The highest rate in the 30 day notice chart is available from Secure Trust Bank, which pays 1.34% gross quarterly on its 14 Day Notice Account. A £1,000 minimum opening deposit is required for this account, which allows unlimited further additions. Withdrawals are restricted to four interest withdrawals per annum and three capital withdrawals per annum on 14 days’ notice. This account must be opened online but can then be managed online and by phone.
Rachel Springall, finance expert at Moneyfacts.co.uk said: “Saving little and often is the key to building an emergency fund. It can be a quick process to open an easy access account and set up a monthly automated payment, so savers don’t necessarily need to put some money aside manually. If savers would prefer to move their cash from their bank account to a savings account, then making a diary note would be a good idea, otherwise they could easily fall out of the habit of saving regularly.
“If someone has debts to pay, it is generally a good idea to get these paid off first, especially they are charging a higher rate of interest than you are earning on your savings – however, having no nest egg whatsoever could be a pitfall for those unable to make additional borrowings on their credit card, loan or overdraft. Using free tools, such as Money Dashboard, can help those who want to see everything in one place so that they can make an informed decision on what to prioritise.”
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.