Ever-increasing numbers of people are raiding their savings pots due to the cost of living crisis, new data has shown.

One in three people now don’t have enough cash for emergencies, according to the latest report by Hargreaves Lansdown and Oxford Economics. This is up from one in four just 18 months’ ago.

Although inflation has eased slightly, according to new ONS figures today, it remains at 7.9 per cent and the cost of many essentials is still rising at a clip.

According to Sarah Coles, head of personal finance at stockbroker Hargreaves Lansdown, we are now seeing savers eat into the cash buffers many managed to build up during the pandemic.

Many households spent less than normal during the worst of the Covid-19 pandemic, helping them save cash. 

Regional breakdown: In Merseyside and Southern Scotland, around half of people don’t have enough emergency savings, Hargreaves Lansdown said

Coles says: ‘Our savings have been savaged over the past 18 months, as runaway price rises have flattened our financial resilience.

‘We’ve been spending our way through any cash we were able to set aside during lockdowns, and we’ve eaten into the money we set aside for dire emergencies too.

‘Lockdown savings are protecting millions of people from running into a brick wall financially.

‘However, those who weren’t able to save anything during the pandemic have nothing to fall back on, and face a serious risk of building impossible debts.’

The report shows the areas of the country with the highest and lowest proportions of people with sufficient emergency funds in place. 

Emergency funds act as a financial cushion to deal with unforeseen events such as losing a job or expensive emergency home repairs.

Personal finance experts believe an emergency fund should cover between three to six months’ worth of basic living expenses.

London and the Home Counties has the highest proportion of people with at least three to six months’ worth of expenses in emergency savings, according to the data.

In Merseyside and Southern Scotland around half of people don’t have three to six months’ of expenses in emergency savings in the bank.

The great divide: 28 per cent of the lowest fifth of earners hold enough emergency savings compared to 92 per cent of the highest fifth of earners

Merseyside in particular has seen the proportion of people with three to six months of savings fall from 68 per cent to 51 per cent over the past 18 months.

Meanwhile, Devon, Essex and West Wales also feature among the regions with the lowest savings rates.

‘The higher cost of living has hit those on lower incomes hardest,’ adds Coles, ‘and laid waste to savings in Northern England and Southern Scotland in particular.

‘In some areas, only around half of people have enough savings to protect them from the unexpected.

‘Aside from wealthy outer London (West and North West), the past 18 months has seen savings fall across the board – in both those areas with plenty of savings and those who are struggling.’

However, this has clearly had a far more profound impact in places where fewer people had sufficient savings to start with.

The real divide is between people at different income levels, with 28 per cent of the lowest fifth of earners holding enough emergency savings compared to 92 per cent of the highest fifth of earners.

However, other factors have a huge impact too. Parenthood is expensive, which is why single parents have such low levels of savings – just 24 per cent have three to six months’ worth of savings.

Those on lower incomes with children are hit even harder. Only 15 per cent of the poorest parents have three to six months’ of spare cash.

Not everyone is facing such a struggle, however. 

The vast majority of higher earners are still sitting on a cash cushion, along with 89 per cent of those who own their home outright, and 79 per cent of couples with no children.

What can savers do to build up cash? 

Anna Bowes, co-founder of the savings website Savings Champion, believes that cash pots will likely continue to evaporate over the coming months. 

She says: ‘It’s of great concern that people appear to be unable to save enough cash for emergencies, never mind other spending requirements, but unfortunately, with the ongoing cost of living crisis, this trend is likely to continue for the foreseeable future. 

‘And unfortunately when people fall out of the habit it can be a hard one to resume.’

According to Bowes, under normal circumstances people should all try to keep around three to six months’ of normal income for emergencies, so they can cover essential costs should the unexpected happen. 

Bowes recommends trying to get into the savings habit by setting up a regular savings account. 

A regular savings account limits how much someone can put away each month.

This helps drip feed cash into savings pots and can help build up a savings habit.

The best regular saver account, from Skipton Building Society, pays 7.5 per cent. 

Bowes adds: ‘One of the best ways to get back into the savings habit is to set up a regular savings account and deposit the amount you can afford the day after you are paid, so it becomes like another bill – but one that you can benefit from in the future. 

‘Regular savings accounts pay some of the top rates available as you are normally restricted by the amount you can deposit and you may not be able to dip into the cash very often, if at all over a given term.

Alternatively, find the top paying easy access account and deposit cash into that on a regular basis, Bowes said.

The best easy access account at the moment pays 4.51 per cent a year, from Chip.