- Cash ISAs saw £5.9 billion of inflows in March, according to statistics released by the Bank of England today – this is the highest March figure on record and suggests that it was a bumper season for Cash ISAs
- Households withdrew £4.8 billion from banks and building societies in March – this is the largest negative flow since Bank of England records began in 1997, though this is a seasonally adjusted figure which has undergone a significant modification
- NS&I saw £3.5 billion of inflows
- Instant access accounts saw £7.7 billion of withdrawals, with much of this going into fixed rate and notice accounts
- Mortgage approvals tick up
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“It looks like ISA season was an absolute cash cow for banks as consumers looked to protect their savings from the rising tax tide. £5.9 billion poured into Cash ISAs, the highest March figure since ISAs were launched. April normally sees even bigger inflows than March, because many savers leave their ISA contribution right up to the final tax year deadline on 5 April. These figures point to a bumper season for Cash ISAs, which is no surprise given that tax bands are frozen or reduced and higher cash rates now mean that even more modest savers are at risk of paying tax on their interest.
“Overall banks and building societies actually saw inflows from households in March in cash terms, to the tune of £5.6 billion. However this was so much lower than usual that it equates to a record £4.8 billion outflow on a seasonally adjusted basis, a methodology which seeks to iron out variations in the data to make each month comparable over time. You have to go back to the financial crisis, when people were queuing outside Northern Rock bank branches to get their hands on cash, to see a similar figure. Back then, £3.1 billion was withdrawn in October 2008, again on a seasonally adjusted basis.
“We are currently in the midst of a new and hopefully more benign credit crunch, precipitated by higher interest rates and some poor risk management from US banks. However this probably isn’t behind the weak banking figures in March. NS&I is a major culprit in blowing a hole in consumer demand for bank and building society accounts. Rate hikes on Premium Bonds and the Direct Saver account meant that £3.5 billion of consumer savings found their way into NS&I. There may be safety worries as well as a return-seeking motive amongst consumers here. NS&I deposits are 100% backed by the Treasury and are consequently more secure than high street bank accounts. Savers may also have been attracted to the tax-free nature of Premium Bonds, which fulfil a similar function to Cash ISAs, albeit with a more random interest payment.
“The poor banking figures for March also suggest pandemic savings are now running on empty after a gruelling year of inflationary pressures, and some consumers are using cash built up in the bank to pay for day to day spending. With record levels of food inflation, high energy prices and winter only just receding, it’s easy to see why people might be turning to their savings to fund expenditure, which clearly negatively impacts their financial resilience to further shocks. Inflation is expected to fall back significantly as we move through the year, and we all better have our fingers crossed that it does.
“There was also significant movement within the banking sector from instant access deposits to fixed rate accounts. £7.7 billion was withdrawn from instant access accounts, but £7 billion was recycled into fixed rate savings and notice accounts. This demonstrates some savvy cash management from consumers. Instant access rates are creeping up but fixed rates are more attractive and, as we approach the end of the rate hiking cycle, are unlikely to get much better.
“There were also some signs of life in the housing market, as mortgage approvals for purchases ticked up from 44,100 in February to 52,000 in March. An improvement no doubt, but mortgage approvals are still running below their long run average. Perhaps more concerning is the fact that the average mortgage rate being paid is still only 2.73%. That’s well below current borrowing rates, and suggests there is plenty more financial pain to come for homeowners as they roll off deals brokered in the era of fast and loose monetary policy.”
Source: Bank of England, not seasonally adjusted
