By James Tanswell

Saving for a rainy day is something that many of us struggle to do. Last month, research from Legal and General suggested that nearly one in four people in the UK have no savings. In fact, the average UK employee only has enough money saved to maintain their lifestyle for one month, should their income suddenly stop.

It doesn’t come as much of a surprise then, that figures from the Office for National Statistics (ONS) show that the average proportion of disposable income that goes into savings is at a record low.

What is the savings ratio, and why is it dropping?

The savings ratio is measured by the ONS, and factors in the outgoings and incomings that affect the average household. Whilst certain factors fluctuate throughout the year, it’s rare for the level of disposable income to fall for more than two quarters in a row. In fact, the last time this happened was over four decades ago, in 1976.

In the first quarter of 2017, the ratio was 1.7%, down from 3.3% in the final quarter of 2016. According to the ONS, the timing of tax payments was a significant factor in the reduced level of saving. Concerns were also raised about the level of consumer borrowing, on things such as:

• Loans 
• Credit cards 
• Overdrafts Car 
• Finance 

Darrem Morgan, The head of GDP at the ONS, commented: "The saving ratio has fallen again this quarter to a new record low, partly as a result of higher tax payments reducing disposable income. Some of the fall could be as a result of the timing of those payments, but the underlying trend is for a continued fall in the saving ratio."

How can I make the most of my savings?

At the time of writing, nine out of 10 instant access savings accounts had an interest rate of less than 1% gross AER. One in three of these offered rates of 0.25% gross AER or less, meaning that savers need to make the most of what they put away.

Inflation is currently at 2.6%, which means any savings account that offers a lower interest rate than this will result in a real terms loss. You may have more in your account than you originally had, but the spending power of this money will be reduced. Shopping around before you put money away into a savings account could result in you finding a more favourable rate. Rates often change from month to month, so if you are a regular saver, it could be beneficial to check the best buy tables from time to time.

Another way to make the most of your money is to consider changing from a saver to an investor. Whilst this comes with an element of risk, you may be able to achieve higher returns by putting your money into, say, a Stocks & Shares ISA rather than a Cash ISA. Your own attitude to risk will dictate how suitable an option this is for you, along with the length of time you can put the money away for.

Is the savings ratio likely to rise?

Anything is possible, but many experts aren’t optimistic.

Frances O’Grady, The General Secretary of the Trade Union Congress, commented: "These figures make for grim reading. People raiding their piggy banks is bad news for working people and the economy. But with wages falling as living costs rise, many families are having to run down their savings or rely on credit cards and loans to get through the month. With household debt now at crisis levels, we urgently need to create better paid jobs."

For more information about making the most of your savings, get in touch by calling the number at the top of the page.