A declining household savings ratio: are you saving enough for 2026?

The savings ratio has fallen once more due to high inflation, and it may fall even more next year

Share According to official data, the household savings ratio has fallen to its lowest point since mid-2024 as high inflation continues to put pressure on incomes.

According to the most recent data from the Office for National Statistics (ONS), in the third quarter of 2025, the household savings ratiothe amount that households save relative to their incomedropped to 9.5%. In Q1 and Q2, it was 10.3 percent and 10.2 percent, respectively.

The decline occurred prior to the most recent interest rate cut and coincided with inflation remaining at 3.8 percent in July, August, and September. After the base rate was lowered on December 18, the ratio might decrease even more if savings rates decline.

Despite a slowdown in inflation, the numbers indicate that households are still struggling.

"Inflation is eating away at disposable incomes and people's ability to save, whether that's for a rainy day fund or the longer term," said Samuel Mather-Holgate, managing director at Mather and Murray Financial.

"When combined with slow GDP growth, this data shows a nation in dire financial straits. A "

To what extent do households save?

Household incomes are declining, according to ONS data, which seems to have an effect on how much people are saving.

The ONS reports that in the third quarter, real household disposable income per person fell by 0.8%.

The savings data appears to have been influenced by this.

During the quarter, the household savings ratio decreased by 0.7 percentage points to 9.5%.

This is the lowest percentage since it dropped to 9.4% in the second quarter of 2024.

At the end of 2024, the household savings ratio reached a three-year high of 11.3 percent, but it has since declined.

What caused the household savings ratio to decline?

Households putting less money into savings accounts than pensions has been the primary cause of the decline.

In February, May, August, and December of this year, the Bank of England lowered interest rates, which coincided with the decline.

Interest rates on savings accounts are now less competitive as a result of the cuts.

According to Moneyfacts data, the average easy access rate decreased from 3.66 percent to 3.42 percent, while the typical easy access rate decreased from 2.9 percent at the beginning of 2025 to 2.53 percent in December.

Moneyfactscompare . co . uk's head of news, Adam French, stated: "Average savings rates have continuously lagged the base rate by about one percentage point since the beginning of 2023.

"A base rate of 3.5 percent would result in average savings rates of about 2.5 percent if that relationship holds true. A "

He cautions that many savers will still find it difficult to generate significant real returns, leaving their money essentially stagnant, even if inflation returns to the Bank's 2 percent target.

"If inflation turns out to be stickier than anticipated, low real returns could indicate that household savings are essentially subsidizing cheaper borrowing elsewhere in the economy," stated French.

"Despite all the talk about lower rates relieving household pressure, perhaps the most comprehensive way to put money back into more people's pockets is to stop prices from rising so quickly. However, this approach may conflict with the continued desire to lower rates. A "

Do you have enough money saved?

Saving about 20% of your income is generally advised by experts.

That might be wishful thinking, though, given the state of the economy.

According to ONS data, the savings ratio last exceeded 20% during the pandemic, reaching 27.5% in the second quarter of 2020 and 21.8% in the first quarter of 2021.

This may have happened as a result of households having more money to save because they were unable to go out and spend.

Interest rate reductions could help lower the cost of borrowing, freeing up some extra money for savings, and inflation might be slowing.

However, since millions of households are anticipated to stop using the low-cost long-term mortgage rates they obtained in 2020, it might be difficult to avoid making any purchases next year.

Mortgage rates of about 4 percent will require borrowers to find money.

"Households are under constant pressure with the cost of living as it is, but the concern going forward is that many have been insulated by being on ultra-low fixed rate mortgages," stated Riz Malik, director of R3 Wealth.

However, 1.8 million deals are expected to mature next year and require refinancing, making it more difficult for even more people to manage their families' finances. The "

In a different article, we examine the average savings by age.