Working couples should have £11,000 saved to survive unemployment, experts warn

WORKING couples should have at least £11,000 in savings to be able to survive six months of unemployment, experts have warned.

But in reality one in 10 Brits have fewer than £500 in savings, according to financial services company Hargreaves Lansdown.

Unemployment hit 4.5% in August, the latest figures from the Office for National Statistics (ONS) showed, with 1.5million thought to be out of work – the biggest surge in a decade.

Household debt is expected to soar in the coming months too as government support, such as the furlough scheme, is withdrawn and families are expected to rely on savings to get them through.

Even though people in work are saving more than ever while coronavirus restrictions curb spending, millions have had wages cut as businesses struggle to stay afloat.

Many workers have already had to raid their nest eggs to make ends meet since March this year, with little opportunity to top them back up.

How much should you save for an emergency?

EXPERTS say working age adults should save between three and six months worth of outgoings in case of an emergency.

To work out how much you will need, you should add up all of your essential outgoings, such as rent or mortgage payments, household bills and multiply it by the number of months.

For example, if your household bills come to £900 a month then you will need £2,700 to get you through three months or £5,400 to get through six months.

If you want to work out how much you will need to live comfortably, then you will need to add these payments onto your essential outgoings calculations.

Where to put your savings

There aren't a great deal of money making options when it comes to holding your cash at the moment as interest rates on savings are at a record low.

Even so, here are some of the top paying options for you:

  • Easy-access – You won't be charged for withdrawing cash from an easy-access account but typically interest rates are lower to reflect this. The top paying account today is 0.96% with Coventry Building Society.
  • Notice savings – Good for those who know they'll need to access their cash but not sure when, say for example if you're saving for a house deposit. You will be able to withdraw your money but you have to give set notice first, say 90 days. The top rate today is 1.12% on an account with DF Captial.
  • Fixed-rate – These typically offer better rates but you'll have to lock away your cash for the agreed term or face paying a penalty to withdraw it early. Here are some examples of the top-rates:
    – One-year fixed – 1.18% with DF Captial
    – Two-year fixed – 1.15% with Aldermore
    – Five-year fixed – 1.5% with UBL UK
  • Cash Isa – These are tax-free savings accounts, meaning you get to keep all of the interest earned on savings set aside in a year. This year, the rate is set at £20,000. Like savings accounts, there are a number of different types available, such as fixed-rates and easy access. Here are some examples of the top-rates:
    – Easy-access – 0.96% with Coventry BS
    – One-year fixed – 0.82% with Charter Savings Bank
    – Two-year fixed – 1% with Cambridge Building Society
    – Five-year fixed – 1.4% with UBL UK
  • NS&I Premium Bonds – Instead of being paid interest, Premium Bond savers purchase bonds worth £1 each, which are entered into a monthly cash prize draw. Prizes vary from £25 to £1million but the odds of winning have recently been dramatically reduced, meaning you also run a high risk of earning nothing.

Even so, working age people are advised to have between three and six months' worth of outgoings in an emergency fund in case their income is slashed or job axed – but 45% of people don't have any savings to fall back on.

Couples need an average of £11,133 to cover essential spending to survive six months of unemployment, the research suggests.

To live comfortably, they would need an extra £3,957 on top of that, so £15,090 in total.

In order to continue living as they do in employment, they would need an impossible £25,618 to cover everything, including all non-essential spending.

For a single adult, it's £5,998 to get through half a year only paying for the essentials, or £7,545 to live comfortably.

To survive three months of unemployment, a couple would need £5,567 to cover the essentials or £7,545 – and extra £1,979 – to live comfortably.

An adult footing the bills on their own would need £2,999 to get through a quarter of the year only covering the essentials, or £4,021 to live comfortably.

Worryingly, 13% of workers say they would rely on a credit card to get them through an emergency, while 12% said they would turn to family or friends to bail them out.

This puts them at risk of getting into debt they may not be able to repay.

"Putting money aside for the future can seem an impossible challenge, especially given that so many people are struggling to cope on lower incomes at the moment," Sarah Coles, personal finance analyst at Hargreaves Lansdown.

"Life has been one long cost-cutting exercise for months, so the idea of doing it again to free up some cash can be daunting.

"However, you don’t have to save enormous sums each month to make a big difference over time.

"If you’re worried, start small and see how it goes. In the end, anything you can put away will be better than nothing."

If you have recently become unemployed you may be able to claim Universal Credit to help cover the bills.

There are a number of additional schemes you may be eligible for too, from council tax reduction to charity grants.

If you don't qualify for benefits, you should consider turning to a free help organisation such as Citizens Advice or StepChange.

The Sun has a guide on how to apply for free grants of up to £10,000 if you’ve recently lost your job.

 

 

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