Comment: On the Money

Londoners are saving more cash than ever, and almost three times as much as the national average. Families in the capital are stashing away an average £129 a month — the national average is just £45.

But are the figures published in the latest Aviva Family Finances Report painting a positive story or negative? Saving money is important, whether it’s for a specific goal — a wedding or holiday — or just to build up a cash reserve to call on in an emergency.

The fact London families have raised the amount they save each month from £85 a year ago, is good news.

But what is really driving the trend? People aren’t saving more to take advantage of great interest rates, that’s for sure. The Bank of England kept the base rate on hold again last week at 0.5% leaving little cheer for savers.

The best deals now are at around 3%, although some fixed-rate tax-free Individual Savings Accounts are paying 3.5%.

But that’s hardly an exciting amount. Save a grand for a year, for instance, and you’ll earn just £35.

So it seems more likely that families are reacting to the Coalition-led austerity measures by cutting back on luxuries to help them cope in the future. Planning ahead like this is sound financial sense. And with Londoners saving three times as much as the rest of the country, we’re looking savvier with cash than ever.

And we need to be. The average London family now owes some £19,479, according to Aviva, twice as much as families outside it.

But that raises the spectre that families are building up their nest egg while increasing their debts. Although it’s reassuring to have a little money for a rainy day, it makes more sense to reduce debts, especially when interest on savings is so low and borrowing rates remain much higher.