‘Wait and see’ savers drain £10bn from fixed rate accounts
Brexit uncertainty has caused UK savers to pour cash into lower-yielding easy-access accounts, according to the latest figures from UK Finance.
According to the data, the total amount in easy-access accounts stood at £652.1bn in March 2019, representing a 2% increase year-on-year.
Meanwhile, the collective sum in personal current and savings accounts increased by 0.4% to £849.3bn over the same period.
In contrast, the amount that was allocated to fixed rate accounts (which require notice but pay out a higher interest rate) came in 5% lower in March when compared to the same month in 2018, totalling £197.2bn. This represents a £10bn drop.
Cash ISAs also experienced a 2.4% fall to £152.4bn year-on-year, which equates to £3.7bn.
Make your savings work harder
Sarah Coles, personal finance analyst at Hargreaves Lansdown, put the fall in fixed rate accounts and cash ISAs down to Brexit uncertainty.
“It’s a perfectly understandable instinct, but wait-and-see saving comes with a major cost: low interest rates. Money in high street easy access savings is losing value when you take inflation into account. If, for example, you’d had £10,000 in an account paying 0.15% for the past year, you’d have made £15 in interest – which is around £175 short of keeping up with inflation,” Coles added.
Even if savers feel nervous about the macro-economic backdrop, she suggests a few vital steps can be taken. Firstly, an emergency fund, typically equating to three to six months’ worth of expenses, should be placed into a competitive easy-access account earning up to 1.5%.
An individual should then consider tying up the rest of their savings for periods of time that are suitable in return for a higher interest rate.
“You don’t need to lock it away forever to make a difference – you can beat inflation in accounts fixed for just one year. You should also seriously consider using an online savings marketplace. These bring all your savings together in one place, so it’s easy to keep an eye on it all, and switch to a better deal,” she explained.