According to figures from the Bank of England (BoE), savers have been withdrawing money from fixed rate accounts at the fastest pace since the 1970s, with some £23 billion being taken out of long-term savings in the last 12 months – equivalent to £900 per household.
The figures would suggest that people have given up on the prospect of achieving meaningful returns on their nest egg. Record low savings rates have instead encouraged people to either spend the cash or transfer the funds to an easy access account so it's there when they need it, rather than keeping it locked away only to earn meagre interest rates.
Moneyfacts data shows that in November the average one-year fixed rate bond stood at a mere 1.67% while longer-term bonds paid an average of just 2.27%, a marked drop on the 5.77% and 5.16% achieved in November 2008 before the financial crisis fully had an impact.
Even though the best rate that can be achieved with an easy access account is currently just 1.6%, the fact that savers can instantly access the funds when they need to is undoubtedly fuelling this product's popularity – particularly given the paltry average rates on fixed accounts.
This view is backed up by the fact that the amount of money held in cash or in easy access accounts went up by 11.2% in the year to October (according to BoE figures), while the amount held in fixed accounts and cash ISAs fell by 4.7%.
Although it paints a worrying picture of long-term savings habits, it's been good news for the economy – economic growth has markedly improved over the last 12 months with consumer spending being the key driver, and people taking cash out of savings and spending it instead (particularly in the run-up to Christmas) could well have helped it on its way.
However, it's still important for people to get into the habit of saving for the long-term with experts suggesting we should be putting aside at least 10% of our monthly income – in the last quarter, the average savings ratio was just 5.9%.
Hopefully when rates start to rise (which the market is anticipating will happen over the next few years when base rate eventually gets back to normality) it'll encourage more people to put money away, but in the meantime there are still some competitive deals to be found – check out our pick of the best easy access and fixed accounts to see if you can make the most of your money.
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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