Bank figures show £23 billion taken out of long-term savings in past 12 months, equivalent to £900 for every UK household
Bank of England figures show that savers have been withdrawing money from their accounts at the fastest rate for nearly 40 years Photo: ALAMY
Savers have been withdrawing money from their accounts at the fastest rate for
nearly 40 years, Bank of England figures show.
They took £23 billion out of long-term savings
in the past 12 months, equivalent to £900 for every household in the
country.
They either spent the cash – which in many cases was earning little more than
1 per cent interest – or moved it to easy-access current accounts. The
Bank’s figures suggest that record low interest rates have convinced many to
give up on the prospect of meaningful returns on their nest eggs.
However, the withdrawals may also have helped to power Britain’s economic
recovery, with much of the cash being spent on consumer goods.
The figures represent a reversal of a trend to hold on to money which began in
2007, at the start of the credit crisis. In the year to Oct 2012, £24.8
billion was added to savings accounts overall. But long-term savings fell by
almost the same amount, a 4.7 per cent decline, in the year to October 2013.
It marks the biggest fall since the 1970s, analysis by Sky News found.
Meanwhile, cash in consumers’ pockets or instant access accounts went up by 11.2 per cent.
Experts said on Monday night that the figures would raise fresh fears about the sustainability of the recovery. They urged the Chancellor to use his Autumn Statement on Thursday to encourage saving for the future.
Sources have speculated that instead of providing individuals with incentives to put more aside, George Osborne may cap the maximum they can store in tax-free ISAs.
Ros Altmann, a former Downing Street policy adviser, told The Telegraph: “The figures are desperately worrying. People are stopping saving for the long term because all the policies of the last few years mean you would be a mug to save.
“The problem is no economy can thrive in the long run without people saving. You can’t run it on borrowing and debt, you need to save and invest for the future. If you just withdraw money and spend you are talking about a recipe for long-term economic decline.”
Tom McPhail of Hargreaves Lansdown, a fund manager, said: “The problem the Treasury have is that they want us to spend, and at the same time taxing accumulated savings must look quite attractive given the state of the public finances. That’s why they have continually nibbled away at pensions. I just hope that they leave pensions alone in the Autumn Statement. We need stability.”
Consumers increased their saving sharply during much of the credit crisis. In the year to October 2009, the amount put into long-term savings rose by £13.9 billion, the Bank said.
The following year, deposits rose by £14.6 billion. But interest rates on savings accounts have tumbled below 2 per cent, the lowest level since comparable records began in 1999, following the launch of the Bank of England’s Funding for Lending scheme last year.
It is designed to provide cheap funding for high street banks in the hope that they in turn lend the money out to business. Campaigners claim the knock-on effect is that banks no longer need to offer attractive interest rates to raise funds from savers.
In September, the state-backed National Savings & Investments (NS&I) cut its interest rates for hundreds of thousands of savers and reduced the prize money on offer to 22 million Premium Bond holders to reflect falls across the rest of the market.
Separately, economists claim the unprecedented squeeze on incomes from high inflation and low wages means more people are forced to tap into long-term savings to pay their bills.
Simon Ward, an economist at City stockbroker Henderson Global Investors, said: “Consumer strength usually reflects increased borrowing but this hasn’t been the key factor recently.
“Instead households have been running down their savings account balances, probably in reaction to the pathetic interest rates now on offer.
“Increased spending is lifting growth and incomes, and money is flowing back to other households in a virtuous circle.”
Meanwhile, cash in consumers’ pockets or instant access accounts went up by 11.2 per cent.
Experts said on Monday night that the figures would raise fresh fears about the sustainability of the recovery. They urged the Chancellor to use his Autumn Statement on Thursday to encourage saving for the future.
Sources have speculated that instead of providing individuals with incentives to put more aside, George Osborne may cap the maximum they can store in tax-free ISAs.
Ros Altmann, a former Downing Street policy adviser, told The Telegraph: “The figures are desperately worrying. People are stopping saving for the long term because all the policies of the last few years mean you would be a mug to save.
“The problem is no economy can thrive in the long run without people saving. You can’t run it on borrowing and debt, you need to save and invest for the future. If you just withdraw money and spend you are talking about a recipe for long-term economic decline.”
Tom McPhail of Hargreaves Lansdown, a fund manager, said: “The problem the Treasury have is that they want us to spend, and at the same time taxing accumulated savings must look quite attractive given the state of the public finances. That’s why they have continually nibbled away at pensions. I just hope that they leave pensions alone in the Autumn Statement. We need stability.”
Consumers increased their saving sharply during much of the credit crisis. In the year to October 2009, the amount put into long-term savings rose by £13.9 billion, the Bank said.
The following year, deposits rose by £14.6 billion. But interest rates on savings accounts have tumbled below 2 per cent, the lowest level since comparable records began in 1999, following the launch of the Bank of England’s Funding for Lending scheme last year.
It is designed to provide cheap funding for high street banks in the hope that they in turn lend the money out to business. Campaigners claim the knock-on effect is that banks no longer need to offer attractive interest rates to raise funds from savers.
In September, the state-backed National Savings & Investments (NS&I) cut its interest rates for hundreds of thousands of savers and reduced the prize money on offer to 22 million Premium Bond holders to reflect falls across the rest of the market.
Separately, economists claim the unprecedented squeeze on incomes from high inflation and low wages means more people are forced to tap into long-term savings to pay their bills.
Simon Ward, an economist at City stockbroker Henderson Global Investors, said: “Consumer strength usually reflects increased borrowing but this hasn’t been the key factor recently.
“Instead households have been running down their savings account balances, probably in reaction to the pathetic interest rates now on offer.
“Increased spending is lifting growth and incomes, and money is flowing back to other households in a virtuous circle.”
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