Saving Rate

The saving rate shows how much of every unit of income is being put aside. It is calculated by dividing the amount saved by income and expressing the result as a percentage.

For example, if your take-home pay is 3,500 a month and you save 525, your saving rate is 15%. If you raise your savings to 700 without any change in income, your saving rate rises to 20%.

People sometimes calculate it using gross income and sometimes using net income, so it is worth being clear about which one is used. Using net income gives a higher percentage for the same amount saved.

The saving rate matters because it controls how quickly savings build up. Someone saving 10% of their income needs many more years to build a large fund than someone saving 25%. A higher saving rate also means lower spending, so the same savings last longer when they are eventually used.

Economists also track the household saving rate for a whole country. A rising national saving rate often signals that households are worried about the future and are cutting back on spending.