- Withdrawals from savings accounts hit 26-year high
- Record-breaking ISA inflows for May – biggest since ISAs launched
- Fixed-rate accounts attract almost £5bn as rates rise
- NS&I dips in popularity as rates trail market
Laura Suter, head of personal finance at AJ Bell, comments on the latest Bank of England Money and Credit data:
“Despite ISA season being over savers continued to flock to ISAs in May, as they tried to protect their cash from a rising tide of tax. Savers paid £3.7bn* into ISAs in May, making it a record-breaking year with the highest inflows for May since ISAs were launched. The flows last month alone amount to more than the same inflows for May for the previous seven years combined. It follows on from a record-breaking ISA season, as rising interest rates and frozen tax bands mean many savers face tax on their savings interest for the first time ever. In total savers shifted £21.5bn into ISAs in the past three months alone.
“As the debate about whether banks are passing on enough interest rate rises rages on, savers are voting with their feet and ditching savings accounts with paltry rates in favour of higher paying accounts. A record-breaking £4.6bn was taken out of bank and building society accounts, marking the biggest withdrawal in 26 years since records began in 1997. When interest rates are low the incentive for savers to move their money is relatively low too, particularly for those with small savings pots. But now many are looking at the difference between an easy-access account paying less than 1% or a top account paying more than 4% it’s moved the needle. Savers withdrew £3.3bn from accounts paying no interest, marking the seventh consecutive month of withdrawals.
“On top of that savers are increasingly locking their money up to get better rates. In May savers withdrew £5.4bn from interest-paying easy-access accounts and put £4.9bn into fixed-rate accounts. One-year fixed accounts are now within touching distance of 6% – with the top account paying 5.9% according to Moneyfacts – meaning there is a decent premium for tying your money up. There will still be some savers sitting on the sidelines in anticipation of higher interest rates and so higher fixed-rate deals. As we near peak interest rates we’ll see even more money move into these fixed rate accounts.
“NS&I saw a dip in popularity in May. It still attracted £800m of money but this was half the value of deposits seen in April. The government-backed provider has since cranked up rates once again on some of its products, in a bid to boost those inflows. The tax-free nature of Premium Bonds will have increasing appeal as more people hit their Personal Savings Allowance and face paying tax on their savings interest. However, savers have to weigh up that benefit with the fact that the expected prize fund is lower than market-leading interest rates, and they could win nothing.”
*Figures not seasonally adjusted. This differs from the figure in the BoE’s Money and Credit release because they are referencing the seasonally-adjusted figure.
Source: Bank of England
