Pandemic-related rush to cash continues, but savings rates suffer

Covid-19 worries cause Britons to put their cash into easy access deals in case of emergencies.

Worried savers are still flocking to easy access deals, Bank of England data suggests, despite rates on these accounts hitting record lows last month.

Figures from the Bank show household deposits rose by £5.2 billion in August. This coincides with rising coronavirus infection rates and linked economic uncertainty.

However, the amount being saved in August was lower than the increase of £6.5 billion recorded in July.

The Bank said most of these deposits are going into instant access accounts.

A shift to easy access accounts is understandable at a time that savers may be uncertain about their job prospects and want their cash to be readily available and not locked away.

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But holding too much in cash can also be detrimental as inflation eats away at the spending power of the money, particularly as the rates on these accounts are so low.

The Bank’s data shows the average interest rate on new deposits fell six basis points to a record low of 0.5% last month. The typical easy access account rate is also at an all-time low after falling seven basis points to 0.14%.

Anna Bowes, co-founder of Savings Champion, says the dash to cash through easy-access accounts has been an increasing trend but could soon change with talk of the Bank heading towards negative interest rates.

She says: “Easy-access accounts are popular with the current uncertainty as people want access to their money. 

“These rates are often variable though and people may soon have a change of heart.

“Fixed rate bonds are paying a higher rate of interest and with the ever-increasing suggestion of negative interest rates, fixing your money for a period of time could negate this factor.”

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Earlier this month news broke that savers are sitting on a £1.5 trillion cash mountain due to worries about the economic impact of Covid-19 and are losing out on income.

Janus Henderson Investment Trusts says savers put £77 billion into cash in the first half of the year, on track to beat the previous record of £82 billion for a whole year in 2016.

The amount held in cash is roughly equal to almost a whole year of UK household income, or the value of all the country’s residential mortgages.

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