Savers pulling their cash out of pensions are contributing to the rise in deposits in easy access savings accounts, according to Moneyfacts.

The financial analyst suggests that pension savers may view cash savings accounts as a safe haven during stock market volatility due to the coronavirus.

Figures from HMRC show that the number of individuals taking money out of their pensions has hit a new high.

Between January and March this year, 348,000 people made a withdrawal from their pension, a 23% increase from 284,000 in the same quarter in 2019.

At the same time, the value of flexible payments from pensions is the highest recorded for Q1 of any year since pension freedoms began in 2015.

HMRC reports that £2.46bn was withdrawn from pensions flexibly in Q1 2020, a 19% rise from Q1 2019.

Over the same quarter, statistics from the Bank of England noted £7.8bn was deposited into accounts that are accessible without penalty, which includes easy access accounts.

But Moneyfacts warned that savers planning to apply for an easy access account need to act quickly as deals are being withdrawn and rates are on the decline.

The average easy access savings rate now stands at 0.32%, down from 0.59% in January, and 0.62% in May 2019.

The best interest rates for someone saving £10,000 are currently from National Saving & Investments Income Bonds (1.15%), Family Building Society Market Tracker Saver (1.13%), and Family Building Society Online Saver (1.06%).

A year ago, the best rate was 1.50% from Virgin Money.

Rachel Springall, finance expert at Moneyfacts.co.uk, says: “The rise in the number of individuals choosing to withdraw their pension cash hitting a new high is slightly concerning, especially as the value of withdrawals was the highest recorded for Q1 in any year since pension freedoms began. Retirees may well be doing so to boost their disposable income in light of the Coronavirus pandemic, however, any immediate respite could have a devastating impact on their pension provisions for the future that they may be unable to recoup.

“One type of savings vehicle consumers appear to be using to hold their pensions cash are easy access accounts, perhaps due to their flexibility and to avoid stock market volatility, but a flood of pensions cash into this market can have consequences that may already be playing out. Indeed, savings providers who are inundated with cash may pull deals entirely, add opening restrictions or cut rates to deter investors. The easy access market is already suffering from rate cuts and withdrawals in light of the coronavirus pandemic and the subsequent base rate cuts, so a flood of pensions cash could result in more reductions or withdrawals.”

Springall suggests that savers planning to open an easy access account would be wise to consider the more unfamiliar challenger banks and look away from the high street banks to find the best returns.

Savers who keep their cash in a high street bank easy access account could be earning next to nothing, for example NatWest pays just 0.01%.

“The savings market is changing quickly, so if consumers are hoping to grab the best possible return on their cash, they will need to act fast,” advises Springall, “It is worth pointing out that easy access accounts pay a variable rate of interest and this can change at any moment. Consumers would be wise to seek independent financial advice before they withdraw their pension cash so that they can understand the impact it may have on their future provisions. Taking cash out of a pension and putting it in a savings account may be a quick fix, but it might not be the right choice.”