Household savings ratio drops – are you setting enough aside for 2026?

The household savings ratio has dropped to the lowest level since mid 2024 as high inflation appears to continue weighing on incomes, official data suggests.

The latest figures from the Office for National Statistics (ONS) show the household savings ratio – how much households save as a proportion of their income – fell to 9.5% in the third quarter of 2025. It stood at 10.3% and 10.2% in Q1 and Q2, respectively.

The dip coincided with inflation holding at 3.8% in July, August and September and was before the latest interest rates were cut. The ratio may fall further if savings rates drop, following the cut to the base rate on 18 December.

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The figures suggest that households are still finding things tough even with inflation slowing.

Samuel Mather-Holgate, managing director at Mather and Murray Financial, said: ”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.

"Coupled with lacklustre GDP growth, this data is a snapshot of a country that is on the rivet financially."

How much are households saving?

The ONS data shows household incomes are dropping, which appears to be having an impact on how much people are saving.

Real household disposable income per head decreased by 0.8% in the third quarter, according to the ONS.

This seems to have fed into the savings data.

The household savings ratio for the quarter fell 0.7 percentage points to 9.5%.

That is the lowest figure since it fell to 9.4% in the second quarter of 2024.

The household savings ratio had hit a three-year high of 11.3% at the end of 2024 but has been falling since.

Why has the household savings ratio dropped?

Most of the dip has been from households putting less into savings accounts than pensions.

The drop coincides with the Bank of England cutting interest rates in February, May, August and December of this year.

The cuts have meant interest rates on savings accounts have become less competitive.

Moneyfacts data shows the typical easy access rate dropped from 2.9% at the start of 2025 to 2.53% in December, while the overall average has fallen from 3.66% to 3.42%.

Adam French, head of news at Moneyfactscompare.co.uk, said: “Since the start of 2023, average savings rates have consistently trailed the base rate by around one percentage point.

“If that relationship holds, a 3.5% base rate would translate into average savings rates of roughly 2.5%.”

He warns that even if inflation returns to the Bank’s 2% target, many savers will still struggle to achieve meaningful real returns, leaving their cash effectively standing still.

French said: “If inflation proves stickier than hoped, low real returns may mean household savings are effectively subsidising cheaper borrowing elsewhere in the economy.

“For all the talk about lower rates easing pressure on households, perhaps the most comprehensive way to put money back into more people’s pockets is to stop prices rising so fast, and it risks being at odds with the ongoing desire to cut rates.”

Are you saving enough?

Experts typically suggest saving around 20% of your income.

That may be wishful thinking in the current economic environment though.

The ONS data shows the last time that the savings ratio was above 20% was during the pandemic when it hit 27.5% in the second quarter of 2020 and 21.8% in the first quarter of 2021.

This was possibly because households were unable to go out and spend so they had more spare cash to save.

Inflation may be slowing and interest rate cuts could help push down the cost of borrowing, freeing up some extra cash to save.

But not spending any money may be a big ask next year, especially with millions of households expected to come off of cheap long-term mortgage rates they secured in 2020.

Borrowers will need to find cash to afford mortgage rates of around 4%.

Riz Malik, director at R3 Wealth, said: "Households are under relentless pressure with the cost of living as it is, but the worry moving forward is that many have been insulated by still being on ultra-low fixed rate mortgages.

"However, next year 1.8 million deals are set to mature and will need to be refinanced, and even more people will find it harder to balance the family’s budget."

We look at the average savings by age in a separate piece.