Over seven in 10 (71%) UK adults have said that they do not know how a savings account works, Pay.UK has revealed.

The firm’s financial literacy survey uncovered this statistic despite 78% of respondents describing themselves as financially literate.

However, Pay.UK stated that this does not always safeguard individuals from financial difficulties. The survey revealed that 19% of respondents run out of money every month, and this figure climbs to 41% for those who don’t consider themselves financially literate.

Even of those respondents who are confident in their ability to manage finances, 27% find themselves running out of money up to every two months.

Product owner at Pay.UK, John Dentry, said: "These findings highlight the gap between perceived financial literacy and practical knowledge, as well as the strong desire for more financial education. In a challenging economic environment, it is more important than ever to ensure that people across the UK have access to the education and resources so they can feel more assured about managing their finances effectively."

Despite the findings, Pay.UK’s survey showed that 28% of UK adults save regularly with a plan for rainy days, while 6% don’t save at all.

However, 32% of those who consider themselves financially literate could correctly calculate compound interest on £1,000 invested at a 5% annual rate.

Additionally, 29% of these respondents could not define what a savings account is, and 35% struggled to explain what an ISA is.

Dentry added: "From understanding the basics of savings accounts to navigating more complex products like ISAs, there is a clear demand for better financial literacy initiatives across all age groups.

"A good starting point for building confidence when managing your day-to-day finances is considering whether your current account meets your needs. Researching the right account can help you learn more about managing your money."

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