Savings rate rises have ‘started to slow’ as savers take millions out of NS&I

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Savings pots have been built up by many over the last year or so, as coronavirus effectively shut down the economy and limited where people could spend their money. However, new data shows savers may be keen to spend as the economy reopens and savings institutions, such as NS&I, may be hit by this.

Sarah Coles, a personal finance analyst, HL broke down how the savings market has coped in recent months.

Ms Coles said: “We may have become a nation of savers while we were stuck at home, but our newfound enthusiasm for squirreling money away has been tested as life has opened up and our savings started burning a hole in our pockets.

“Spending has hit our commitment to building the cash cushions in our current accounts in particular.

“The pace of saving dropped in May, with around £7billion added to accounts during the month – this had averaged £16.5billion in the six months to April 2021.

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“In particular, the amount of money added to accounts earning no interest – which are generally current accounts – dropped significantly.

“We’re not yet spending more than we pay into these accounts: we paid in £834million more than we spent – but that’s down from £6.73billion a month earlier.

“The ease with which money flows in and out of these accounts demonstrates why a current account is a terrible home for an emergency savings safety net.

“In the vast majority of cases you will earn little or no interest, but even if your bank offers a decent rate for cash balances, it’s far too easy to spend this money on things that don’t qualify even under the most generous definition of emergencies.”


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Ms Coles went on to examine the rates currently available to savers.

She continued: “Overall, savings rates remain fairly uninspiring, with the average easy access rate still stuck at 0.06 percent and the average for fixed rates over 12 months at 0.24 percent.

“However, the most competitive accounts available from smaller or newer banks have crept up in recent weeks, so the top of the easy access is now at 0.50 percent, and the best one-year rate on the market is now 1.1 percent.

“On the plus side, a number of banks are pushing rates up towards 0.5 percent in the easy access market, and when rates coalesce around a particular point, it means we’re far less vulnerable to one or two banks pulling back.



“There’s also a reasonable chance that at some stage someone will decide to nudge the rate up slightly to stand out.

“Mortgage lending is also still strong, which is helping to underpin the savings market. Net mortgage volumes were at £6.6billion in May, while approvals for house purchases remained elevated at 87,500.

“But competition in the mortgage market has pushed rates to record lows, which will put savings rates under pressure.

“Savings rate rises have started to slow, which is a useful reminder that there are no guarantees they’ll keep creeping up indefinitely. If you’re planning to switch, the key is to find the best possible rate in the market right now, rather than hanging on in the hope of finding rates that might not be on the cards for years.”

HL examined where savers are keeping their money at the moment and NS&I, the savings institution which provides premium bonds, saw huge withdrawals in recent weeks.

On top of this, savers appear to be moving away from fixed rate accounts overall, as the following details:

  • Cash in accounts not paying interest: Change in balances in May – £834million, balances outstanding – £243.7billion
  • Easy access (paying interest): Change in balances in May – £7.55billion, balances outstanding – £937.7billion
  • Fixed rate accounts: Change in balances in May – £1.15billion fall, balances outstanding – £151.9billion
  • Cash ISA: Change in balances in May – £23million, balances outstanding – £296.8billion
  • NS&I: Change in balances in May – £129million fall, balances outstanding – £202.8billion

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