Savers across the UK are withdrawing money at the fastest rate for almost 40 years, according to the Bank of England.
The last 12 months have seen £23bn taken out of long-term savings accounts, the equivalent to £900 for every household across the whole of Britain.
Many have either spent the cash or switched their finances to easy-access current accounts as low interest rates mean people are drifting away from saving.
Reversing trends
It is a reversal of the trend seen prior to the recession when people were piling money into savings accounts.
In the year to October 2012, £24.8bn was added to savings accounts yet savings fell by almost the same amount in the year to October 2013 – a 4.7% decline.
That marks the biggest decline since the 1970s according to Sky News, as personal finance concerns continue to drive people away from long-term saving.
From 2007, a post-crisis savings trend ensued, as the period between October 2008 to October 2009 saw £13.9bn added in long-term savings.
The following year saw deposits increased by £14.6bn in another significant rise that really established an undeniable trend.
Falling interest rates
Interest rates on long term savings accounts are currently hovering around 2.4% – the lowest level since comparable records began in 1999 –since tumbling following the launch of the Bank of England’s Funding for Lending scheme last year.
It is designed to provide cheap funding for high street banks in the hope that they lend to businesses, although it is claimed there is no longer a need for these banks to offer attractive interest rates.
The state-backed National Savings and Investments cut its interest rates for hundreds of thousands of savers in September and reduced the prize money for 22 million Premium Bond holders to reflect market conditions.
Economists have also claimed that the squeeze on incomes caused by inflation and low wages means many people are tapping into their savings simply in order to get by.
Political intervention
The ‘cost of living crisis’ is being turned into a long-running political debate and will certainly influence the 2015 general election.
With energy and household bills rising, and with wage increase failing to beat inflation, many people are worse off in real terms which would explain the sudden move towards emptying savings accounts.
Personal finance for most people is tight and with the festive season also notoriously expensive, the situation is unlikely to change in the coming months.
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