We need a £4,000 pay rise to boost savings

• Half of UK workers have received a pay rise in the past year and nearly a third got a bonus
• It takes just three months for the pay rise effect to wear off

New research from Charter Savings Bank¹ shows UK workers believe they need an annual pay rise of nearly £4,000 on average to significantly change their saving habits and, when it comes to bonuses, a £3,410 pay-out is needed to put more cash into savings.

The challenger bank asked workers to estimate how much of a pay boost it would take to increase or start saving and found the average increase was £3,889, although 31% say they would save any additional money. When it comes to bonuses 36% say they would save any additional cash.

Its study found half (51%) of UK workers have received a pay rise in the last year, while nearly a third (29%) have been paid a bonus.

Despite not necessarily receiving the hoped for £4,000 pay rise, the research shows workers do try to set aside extra cash. Of those who received a pay rise recently, a fifth (20%) saved all the extra money and (10%) saved some. The majority (76%) of those who did save their extra cash did so straight away.

The research shows the pay rise effect does not last long for those who don’t increase savings. More than two out of five (44%) say they don’t feel they have any extra cash immediately, while 73% feel no better off after three months. After 12 months just one in six (18%) of those who have received a recent pay rise still feel like they have extra money despite not saving any.

For nearly one in five (17%) pay rises simply allow them to catch up as their spending was outstripping their salary, while 12% use the cash to clear debts. Around 11% used their pay rise to increase lifestyle spending, while 9% used it to pay for a holiday. The most popular use of a bonus is to save the extra money (20%), but the second most popular is to use it for a holiday (16%).

What people do with their pay rises and bonuses

Paul Whitlock, Executive Director of Savings, Charter Savings Bank, said: “It is encouraging to see that even though they aren’t earning as much as they would like, UK workers are still trying their best to save any additional money, whether that be from a pay rise or bonus.

“As our research shows it takes just three months for the majority of people to feel like they didn’t have extra money, it’s important to use this extra cash for something immediately, whether that be paying off debts or putting into a savings account. Otherwise the money will soon be wrapped up into regular spending.

“It may not feel worth saving extra money if it is only a small amount but small, regular amounts soon build up and it can be satisfying seeing the money grow.”

^{1 Opinium conducted research among 2,002 adults living in the UK on behalf of Charter Savings Bank between 21st – 23rd May 2019}