What Is the Savings Rate?

Savings Rate Explained in Less Than 4 Minutes

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A savings rate is how much of your disposable income you save each month, expressed as a percentage. If you currently save $100 out of every $1,000 of your after-tax pay, your savings rate is 10%.

A higher savings rate means you’re setting aside more of your income to fund future goals, such as buying a house, retiring early, or going on a dream vacation. Knowing how to calculate your savings rate can shed light on how much you’re currently spending and saving relative to your income.

Definition and Examples of the Savings Rate

Your savings rate is the percentage of income you save after you pay taxes. “For example, if your net income for the year is $50,000 and you save $5,000, then your savings rate is 10%,” Jason Dall'Acqua, a CFP with Crest Wealth Advisors LLC, told The Balance via email.

  • Alternate name: Personal savings rate

The higher your savings rate, the more income you’re putting toward building a nest egg and securing your future. 

You can put this extra money in a mix of savings accounts (for emergency funds and short-term goals), retirement accounts (for when they’re no longer working), and investment accounts (for long-term goals). 

How Does the Savings Rate Work?

You can calculate your savings rate once you determine your net income, or take-home pay, and how much you save, or your personal savings. 

Let’s say your take-home pay is $82,000 a year. You can then calculate your savings rate using this formula:

Personal savings rate = personal savings / net income

Going back to our previous example, let’s say you save $1,000 a month or $12,000 a year. You can take this number, along with your disposable income ($82,000), to calculate your savings rate: 

$12,000 / $82,000 = 0.146 or 14.6%

In this case, your savings rate is 14.6%.

Why Is Calculating Your Savings Rate Important?

“Your savings rate is important in achieving long-term financial goals such as buying a home, paying for college, and most notably retirement,” Dall'Acqua said. “Gone are the days where Social Security and a pension provide a comfortable retirement, particularly because pensions are less common among private sector companies. People bear a greater responsibility to personally fund their retirement.”

Aim to save 15% to 20% of your income, Dall'Acqua said.

“If you are currently saving below this level, then see if there are ways to increase your income or decrease expenses so you have more cash flow to save. If you’re saving above this level then keep it up.”

National Savings Rate in the U.S.

The U.S. Bureau of Economic Analysis publishes the national savings rate for Americans each month. In recent months, the national savings rate has fluctuated between about 7.8% and 33.8%:

Month National savings rate
January 2020 7.8%
February 2020 8.3%
March 2020 13.1%
April 2020 33.8%
May 2020 24.8%
June 2020 19.3%
July 2020 18.7%
August 2020 15.0%
September 2020 14.3%
October 2020 13.6%
November 2020 13.0%
December 2020 14.0%
January 2021 20.2%
February 2021 14.0%
March 2021 26.9%
April 2021 12.7%
May 2021 10.3%
June 2021 9.4%

Source: U.S. Bureau of Economic Analysis

One reason the U.S. savings rate has been generally declining this year, according to Dall'Acqua, is that now that people are getting vaccinated and businesses are reopening.

“Savings rates have trended lower over the past few months as the economy has continued to reopen, with the national average back into the single digits,” he said. “People have a pent-up desire to spend, and the data clearly shows that they are doing so.” 

The U.S. savings rate can provide a broad gauge of savings trends, however savings rates among individuals can vary significantly.

While many Americans increased savings during the pandemics, the savings rate was not universal across income levels, Dall’Acqua said.

“Lower-income households were more negatively impacted by the pandemic due to a higher rate of job loss,” he said. “Higher-income households, on the other hand, saw their spending decline due to lower economic activity, but may not have seen a reduction in income, allowing them to increase saving significantly.”

Key Takeaways

  • Your savings rate is the percentage of income you save after you pay taxes.
  • A higher savings rate indicates you’re setting aside more of your income for the future.
  • Experts recommend having a savings rate of 15% to 20% if you want to retire comfortably and reach other savings goals.
  • The U.S. savings rate trends upward when economic uncertainty sets in because people are fearful of the future. The U.S. savings rate trends downward when the economy is stable because consumption is high.