We're saving more -- even though it's giving us much less in return
Published 14/01/2014 | 02:30
The number of regular savers increased in December as households finally began to buck the burden of debt, new research has shown.
The latest savings index from building society Nationwide UK (Ireland) shows that people's ability to save is improving.
"The main difference is the people actually have the ability to save now. A year ago the regular saver had all but disappeared.
"We've seen a huge turnaround since an all-time low in regular savers was recorded last February," said Brendan Synnott, managing director of Nationwide UK (Ireland).
The index found that 34pc of people surveyed in December said they put away money regularly, compared to 32pc in November and just 30pc a year ago.
The proportion of people who said they were not saving at all declined, falling to 40pc in December from 44pc in November and 48pc a year ago.
"One of the biggest reasons for this is that households have managed to reduce their debt levels. A year ago, any excess of cash was going toward paying down debt. That's finally begun to change," said Mr Synnott.
A fall in unemployment rates also contributed.
Nationwide expects the number of regular savers will continue to improve in 2014, though gains may be limited by an increase in spending as consumer confidence recovers.
"The findings are definitely indicative of the health of the overall economy and really reflects the views of the average person on the street," added Mr Synnott.
Yet his organisation's research also showed that people still viewed current government policy as difficult for savers. Less than one-quarter of people believe that now is a good time to save.
This was particularly true for those aged under 50, who have reported increasing unhappiness with government policy for four straight months.
Mr Synnott blamed this on low interest rates and steep taxes on any interest earned. The ECB decision to cut its key lending rate in November resulted in falling interest rates on savings across Europe.
The Government also increased the rate of tax charged to interest earned on deposits (DIRT tax) to 41pc from 33pc.
"All of Europe is facing low interest rates, but in Ireland this is compounded by the high taxes levied on interest earned," he said. "Reducing DIRT tax is the single most important thing the Government could do to encourage saving," said Mr Synnott. "The current rate is penal."