UK households have been withdrawing record amount from banks and building societies as the Bank of England hikes interest rates and big lenders are called out for their low savings rates.
A record £4.6bn was taken out of savings from banks and building societies in May, according to figures from the BoE today.
Meanwile, £0.8bn was paid into Nations Savings & Investment (NS&I), so overall a net £3.8bn was withdrawn during the month.
A noticeable spike in withdrawals from easy access accounts paying interest was noted, more than doubling to £11.4bn from £5.4bn, while easy access accounts paying zero interest saw £3.3bn withdrawn.
Meanwhile, customers shifted £4.9bn into fixed-rate accounts, where many smaller banks are routinely offering rates between 5.1% and 5.8% for one-year bonds, while £3.3bn went into ISAs, where savers can invest in equities to potentially make further gains.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said the UK is "raiding our savings at a record rate" was partly down to some "sensible juggling", as people move into fixed rate deals, competitive NS&I accounts and ISAs.
"However, there’s a real risk that millions of people are being forced to erode their savings to make ends meet," she said.
She also noted that the BoE figures saw a small bump in mortgage approvals for new purchases in May, as rates started to rise, and potential buyers rushed to get their loan in place before rates got even worse.
"This was always a risk at this stage in the cost-of-living crisis, now that so many people have cut every cost they possibly can and are being forced to raid their emergency savings. We know that those on above average incomes still have lockdown savings to call on, but if the spending squeeze goes on for much longer, these will be worn away entirely."
As for the big banks, they have largely brushed off the record withdrawal in savings from banks and building societies, said Susannah Streeter, HL's head of money and markets.
"Although was there was a hike in withdrawals from easy access accounts paying low interest and those bearing no interest – big chunks went back into fixed rate accounts or ISAs. Banks are still enjoying strong tailwinds as interest rates rise and fresh hikes are on the way, but as competition hots up among lenders for both lending and savings rates, this could weigh more on net income margins."
"And overall big UK banks’ capital positions are strong so should be able to ride out most wobbles, but if defaults jump up and we see net outflows moving further in the wrong direction for a prolonged period, things could become more challenging."