Unexpected household costs such as replacing a broken down boiler, can hit family budgets hard. Do you have enough saved to cover such emergencies?
More than 26 million Brits say saving improves their state of mind, according to new research by National Savings and Investments (NS&I).
Despite this, almost four out of 10 say they regularly worry about their finances.
It is often a lack of forward planning that leads to this stress, say NS&I.
This is not a surprise as household emergencies can be pricey – the cost of a new boiler and installation this winter, for example, will set you back around £2,500.
Middle aged hit hardest
Over the past year, a typical family’s savings pot has fallen by £97 to £1,131, according to a study by insurance firm Aviva.
And 28 per cent of families have no savings at all.
Its research suggests a lack of funds to fall back on can hit those aged 35 to 44 the hardest.
Aviva spokesman Simon Warsop said: "For the middle age group, responsibilities are mounting as they are more likely to have the additional costs of running their own home and bringing up a young family.
"As well as affording the costs of everyday items like bills, food and clothing, unexpected costs like boiler repairs and car breakdowns are also major worries."
Overdraft temptation
In the event of having to cover an unexpected expense, it appears many people are tempted to turn to their bank overdrafts.
Over the past five years, debt charity the Consumer Credit Counselling Service has seen the average overdraft debt rise from £1,748 in 2007 to £2,082 today.
And, research from Confused.com shows the current average annual overdraft interest rate is 14.54 per cent.
This means that if you’re forced to dip into your overdraft to cover an emergency, you could end up paying a lot more back once the added cost of interest has been taken into account.
Credit card crisis
Credit cards are also a popular option to cover unexpected expenses in a household crisis.
However, if your boiler breaks down in the middle of winter you may not be able to wait the couple of weeks it can take for your new card, ideally a 0 per cent interest purchase one, to come through.
So you may be forced to use your existing card.
And with the average annual interest rate currently standing at 18.35 per cent, again, you may end up paying over and above the original price if you don’t clear the debt quickly.
No substitute for savings
While research suggests that Britain’s rainy day savings culture is being washed away fast, there is hope.
More than a third of Brits currently commit to putting a portion of their earnings in a savings account each month, say NS&I.
And the sooner you start the better.
Nerys Lewis, head of credit cards and savings at Confused.com, says: "There really is no substitute for a savings account to fall back on in times of need.
A ‘great option’
"Currently, the market-leading ING Direct Savings Account is a great option for those looking to kick-start their savings habit.
"You can open it with only £1 and access your money instantly.
"It offers you an annual interest rate of 2.5 per cent during the first 12 months of opening the account.
"After the initial 12 months the rate will revert to the standard variable rate of 0.5 per cent, so you may wish to consider moving your money after this period."
