What's behind Britain's savings boost?

savings jar increasing©iStock.com/lightkeeper

IN a recession, we expect savings accounts to be depleted: people lose their jobs or earn less money, everyday prices rise and, feeling worried, more people repay their debts.

Yet, according to the ING's most recent Consumer Savings Monitor report, the UK saw a record increase in savings in the last quarter.

Someone is managing to put more money away. Which made us wonder: who?

How much has the UK saved?

In the first quarter of 2012, ING shows a record increase of the amount of savings Brits have rise by £284 (18%) to £1,858 in average savings.

That's the highest level of saving since 2010 and a 4.2% increase (£75) compared with the same period in 2011.

The combination of low debt figures and increases in savings have left the average Briton £639 better off, no small feat amongst restricted budgets and low interest rates on accounts across the board.

But, as we said above, figures about average saving only give us a vague idea of what 'more saving' has actually meant for households.

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And it's worth noting that this report measured just easily accessible cash savings and didn't look at how useful those savings would be.

Scottish Widows recently pointed out, for example, that pension savings have hit their lowest level in at least eight years.

Not everyone will have been able to save more so this average may be fairly evenly distributed, more savings for many households, or concentrated in fewer households who have put a larger amount away.

It's hard to deduce this from the ING report but we can take some educated guesses.

Where has the money come from?

Inflation worry

ING suggest that one of the main causes of the sudden surge in funds is simply force of will.

In an uncertain time it makes sense to save, even when it's difficult. ING point out that in the last quarter a poll they carried out found that 38% of consumers said they planned to 'save more' as their first priority.

This time round, 40% were planning on the same thing.

The majority of households are simply finding themselves watching their finances more rigorously and, as such, spending less month to month.

This is the kind of behaviour that we'd expect to see fairly well distributed throughout UK households.

Borrowing already paid off

It's a similar story with borrowing.

The recession has seen the UK adopt a more cautious approach to borrowing as well, in the past quarter ING found a modest rise of 0.8% in borrowing such as credit cards or loans.

Since the average debt has remained surprisingly low for some time now we can guess that, having paid off outstanding debts, people are generally more free to put money into savings.

PPI refunds

More surprisingly, it appears that the majority of saving accounts have been enhanced by the billions of pounds owed across the country in PPI refunds, to customers who were mis-sold policies.

34% of those due a PPI payout said that they planned to invest their refunds into savings.

With an average refund of around £2,600, that's £480 million saved in the first quarter of 2011 and a total of £1.9 billion by the end of 2012 as more refunds are processed throughout the year.

This is highly likely to have skewed the average results to some extent.

Although many people got fairly modest refunds of a few hundred pounds, PPI claims can reach into the thousands - far more than the 'average' increase in savings.

Is saving worth it?

As inflation slowly drops and employment makes a slow but steady increase, there is the hope rising household expenditure will boost the economy back to full strength.

On this evidence, however, Brits are increasingly more savers than spenders.

That may change to some extent simply because saving can sometimes feel like it's not the best investment.

According to Moneyfacts, £10,000 invested five years ago now has a real spending power of just £9,208, including an average amount of interest and taxation.

Britain is showing signs of a slow financial recovery and despite many factors that may throw this revival off course - namely, the Eurozone debt crisis - it seems as though the UK is determined to follow through with its goal to boost their savings.

While the restraint on consumer spending at this time has left the option for economic growth at something of a standstill, the UK is standing firm on it's promise to put back into the savings pot.

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