Hey big spender...

New research reveals that nearly 50 per cent of adults in the UK have less than £500 in personal savings

It's been a long time since the state pension was considered adequate for a comfortable retirement, which is why the Government has been trying to encourage us to become a nation of savers. But it's still got a long way to go. Research from NOP, on behalf of M&G Investments, reveals that nearly 50 per cent of adults in the UK have less than £500 in personal savings.

It's been a long time since the state pension was considered adequate for a comfortable retirement, which is why the Government has been trying to encourage us to become a nation of savers. But it's still got a long way to go. Research from NOP, on behalf of M&G Investments, reveals that nearly 50 per cent of adults in the UK have less than £500 in personal savings.

Jeffrey Mushens, director of sales and marketing at M&G, says the survey's finding that 21 million or so adults had such small amounts saved was a surprise. "But the biggest surprise was that many of these people regretted they hadn't got more saved and didn't start saving earlier."

Even though 40 per cent of respondents were worried they hadn't saved enough money, and 39 per cent wished they had started saving earlier, these fears were not enough to prompt them to do anything about it, it seems.

A fifth of the population do not save at all on a regular basis, while a third saves less than £50 regularly. The amounts suggest that retirement for some will be difficult.

According to Virgin Direct, anyone looking to amass a £450,000 pension fund would need to pay £121 a month into such a scheme from the age of 18. Leaving it until 25 would cost the saver £188 a month; from 30, that sum would be £261. About £527 a month would need to be salted away for those reaching 40 before starting a pension scheme.

"Unfortunately, putting off a pension can prove to be an expensive delay," says a Virgin Direct spokesman. "A pension should be started as soon as you can afford to, otherwise you can find yourself with a financial mountain to climb."

The M&G research suggests there is little variation in saving patterns country-wide. Habits and attitudes are similar regardless of age, gender or location. Some people might not be able to save, but, according to M&G, this is not the main reason why so many have less than £500 put away.

"The funny thing is it's not always that people haven't got the money to save, but that they just don't get around to organising it," says Mr Mushens.

The majority of people - 88 per cent - would be prepared to make sacrifices to save more. Six in 10 of the respondents admitted they could easily put aside an extra £10 a month - which would be better than nothing.

Mr Mushens comments that opening an account and setting up a direct debit is easy. "It takes five minutes to set up a direct debit - I've tried it out." M&G has lowered its minimum investment requirement to £10 a month.

Traditionally, savers first tend to open an instant access savings account with the bank that runs their current account. But this might not be the best option since high-street banks pay paltry interest rates - ensuring virtually no growth on savers' capital.

Lloyds TSB, for instance, requires a minimum of £250 to be held in a flexible savings account but pays only 1.2 per cent interest. HSBC requires a £1 minimum balance but its rate of interest is still a measly 1.5 per cent.

Opting for an internet-only account is a better option; Nationwide's e-Savings pays 6.7 per cent. But a mini cash individual savings account (ISA) makes most sense as the interest is tax-free and you can invest up to £3,000 a year. (See the table for best rates.)

Many are still unaware that money put into an ISA is not locked away. Introduced two years ago, ISAs were designed to be much more flexible than the personal equity plans (Peps) and tax-exempt special savings accounts (Tessas) they replaced.

Investors used to be penalised by a lower rate of interest if they wanted to touch their Tessa money before the end of the five-year term. Many people falsely assume ISAs carry the same penalties. But mini cash ISAs are little different from savings accounts, apart from being tax free. Some require you to give notice before you withdraw money but most are instant access.

Once you have built up a cash reserve, collective funds - unit trusts, open-ended investment companies and investment trusts - are worth considering. Although the risk is higher than with savings accounts, the potential returns are greater. You do not have to pay in a lump sum and you can make monthly instalments.