Financial Pressures Mount as Households Struggle to Cover Rising Costs
The financial strain on UK households has reached a concerning milestone, with nearly half (49%) of consumers dipping into their savings to manage escalating living expenses and unexpected costs. This marks the highest level of savings withdrawals in over a decade. Additionally, 27% of UK consumers anticipate relying on credit options such as new credit cards or Buy Now, Pay Later (BNPL) services to navigate ongoing financial pressures.
A recent study by RFI Global, a financial services data and insights company, highlights the growing reliance on alternative financial solutions as traditional savings methods become insufficient. The research, conducted among 4,000 UK consumers aged 18 and above, reveals a stark reality—savings are no longer primarily reserved for future goals but are increasingly being used for everyday expenses.
Increased Credit Dependency Among Households
As household budgets tighten, credit usage is surging. Over one in ten consumers (12%) now rely on BNPL to cover essential costs, while a third (33%) combine BNPL with credit cards to stretch their finances further. Alarmingly, 65% of consumers who frequently use BNPL services expect to seek additional credit in the next year, significantly outpacing the 27% of non-credit users who foresee the same need.
The widening financial gap between different demographics is also evident. While 80% of banked UK consumers have savings, more than one-third—predominantly millennials aged 27 to 42—hold less than £1,000 in savings, with 29% reporting balances below £500. In contrast, the top 25% of savers, largely composed of retired baby boomers, have an average of £91,500 in savings.
Savings Shifting from Long-Term Goals to Immediate Needs
Despite intentions to build financial security, many consumers have struggled to save, leading to a sharp decline in new savings account openings. According to Hubert Petka, Group Director at RFI Global, “Consumers are using their savings for household expenses and emergencies rather than for travel, retirement, or long-term goals. This shift leaves many without the necessary funds to handle urgent home or vehicle repairs, forcing them to turn to credit options instead.”
Neobanks Gain Traction Amid Changing Consumer Preferences
As financial habits evolve, digital-only banks and fintech services are gaining momentum. The research reveals that neobanks such as Monzo, Starling, and Revolut have increased their market presence from 16% in 2018 to 50% in 2024. Consumers with a main debit card from a neobank now spend 20% more than those banking with traditional high street providers.
The dominance of the UK’s “Big Six” banks has steadily declined, with their market share dropping from 85% in 2020 to 71% in 2024. Younger generations, particularly Gen Z and millennials, favour digital banks for their convenience and advanced technological offerings.
The Shift Toward Reward-Driven Banking
Consumer behaviour is changing as people increasingly switch banks to benefit from rewards such as cashback, interest incentives, and promotional bonuses. Of those considering switching in the next 12 months, half cite financial incentives as the primary motivation.
“As competition intensifies, banks are offering more attractive rewards to secure customer loyalty,” Petka added. “However, with many consumers dissatisfied with their current banking benefits, financial providers must continue innovating to retain customers.”
A Changing Financial Landscape
The UK’s financial landscape is undergoing a significant transformation. Consumers are diversifying their financial activities, using an average of 5.3 financial providers per person—up from 4.3 in 2015. Younger generations, who are more likely to switch banks, are shaping a new era of financial behaviour driven by digital innovation and reward-driven incentives.
As financial pressures continue, households will need to carefully balance savings, credit use, and financial planning to navigate the challenges ahead.
