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Savers withdrew £6bn from NS&I in month amid savage rates cull

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Brits ditched NS&I as its fierce rates cuts took effect in November, with more than £6bn withdrawn from holdings in the government’s savings arm.

Savers withdrew £6.2bn from NS&I in November, tying in with its rates cuts which saw some products offer just 0.01% interest.

This compares with just £0.5bn withdrawn from the government’s savings arm in October.

Data from the Bank of England’s Money & Credit report for November 2020 revealed that cash was ploughed into savings accounts as balances increased £17.6bn in the month.

This figure was up from £12.7bn in October, with easy access accounts paying 0.12% and new fixed rate savings standing at 0.5%.

The report stated: “The strengthening in November might not reflect a greater household desire to hold cash-like, liquid, assets, however. NS&I accounts, which are not captured within household deposits but can act as a substitute for them, were historically weak in November, with £6.2bn of withdrawals.

“The combined flow into both deposits and NS&I accounts was stable between September and November at around £12bn, compared with an average of £21.7bn between March and June.”

While NS&I savings are still up from the start of the financial year, one analyst said the outflows could be of concern.

Laith Khalaf, financial analyst at AJ Bell, said: “The size of the outflows will be concerning for NS&I, as it has gone from being flush with cash to now finding itself below its £35bn funding target for the year. NS&I saw inflows of £38.3bn in the first six months of the financial year, from April to the end of September. But Bank of England data has shown withdrawals of £0.5bn, and £6.2bn in October and November respectively, which look like they leave around £31.6bn in the tank.

“That’s below NS&I’s £35bn target, though there is £5bn leeway either side, and NS&I still has until the end of March to make good any shortfall. In that time there will be some inflows through regular savings, which may help to offset withdrawals. ISA season is also just around the corner, when the end of tax year deadline serves to motivate savers to stick money in their tax shelters. However NS&I no longer offers an attractive rate of interest on its cash ISA, and with cash rates across the board so low, ISA savers may prefer stocks this year in any case.”

Mortgages and borrowing

Meanwhile the data revealed that mortgage approvals for purchases hit their highest level since 2007 as buyers rushed to take advantage of the stamp duty holiday.

There were 105,000 agreements up from 98,300 in October with £23.2bn of lending completed in November.

Approvals over the year to November were roughly in line with 2019 at 715,300 compared to 722,000.

The Bank noted that consumer credit remained weak in November, with households making net repayments of £1.5bn.

Effective rates on new personal loans increased by 31 basis points to 5.46%.

This followed a net repayment of £0.7bn in October. Since the beginning of March, households have repaid £17.3bn of consumer credit.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “We paid back £1.5bn in consumer credit – around twice what we repaid in October – so borrowing was down 6.7% in year (a record fall). Within these figures, credit card borrowing fell 14.5% – another record drop. Since the onset of the crisis we have repaid £17.3 billion of consumer credit.

“However, this was mainly driven by us spending less rather than paying more back, and while lockdowns disrupted Christmas spending, we will still have managed to rack up festive bills. Our research shows that one in four of us puts at least some of our Christmas spending on a credit card, so we’re likely to see face bigger credit cards bills this new year.”

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