It’s safe to say that uncertainty over what the Chancellor may or may not do next has convinced households to bunker away cash.
My analysis of Bank of England data shows just short of £100billion has been salted away since August 2024, weeks after Labour came to power – a massive sum.
This is money that has flowed into easy-access accounts, fixed-rates and Isas.
There is no doubt that better savings rates on offer are part of the story, but better rates were available in the run up to the 2024 general election – including the market zenith, a 6.2 per cent fix from National Savings and Investments in October 2023.
But despite that, in the same period before Sir Keir Starmer became Prime Minister, £73.2billion flowed into savings, some 36.4 per cent less than what’s gone in since.
Another part of the story is fears over cash Isa allowances being cut and people possibly doing the opposite of what the Chancellor wants – pouring more money into tax-free savings accounts, instead of investing.
Shelter: More Britons have stuck money into savings accounts since Labour came into power versus the same period before
Clearly, savers have upped their game. They’ve added some £7.5billion extra to accounts in September, often a sluggish month for saving.
The Bank of England report says: ‘The effective interest rate paid on individuals’ new time deposits with banks and building societies was 3.82 per cent in September, up from 3.79 per cent in August.’
But as our savings expert Sylvia Morris pointed out yesterday, £32billion is somehow still sitting in accounts earning 1 per cent or less, much of which is with big banks ripping people off.
It’s simple to find rates paying 4 per cent or more in our independent best buy savings tables.
The big winners in September were cash Isas with an extra £2.4billion heading in and easy-access accounts with £6.5billion, a third more than a year ago – but fixed-rates are out of favour, with £1.5 billion heading out.
It’s not surprising savers are heading for easy-access accounts when faced with uncertainty. They want their cash at arm’s reach to pivot, adapt and take the fight to Rachel Reeves if need-be.
There is uncertainty over savings tax rates, cash Isas, mansion taxes, personal allowance freezes, potential clampdown on pension tax-free cash and sweeping inheritance tax changes, to name just a smorgasbord of what’s potentially being cooked up.
As Maike Currie of PensionBee said on Tuesday after the Chancellor’s last minute early morning speech about the Budget on 26 November: ‘By signalling her intent ahead of time, she’s preparing the ground for tough but necessary fiscal choices.
‘This approach sets the stage for what could be one of the most consequential Budgets in recent memory.’
Savers will also be keeping an eye out for the Bank of England decision tomorrow.
Interest rate cuts may arrive earlier than originally thought as inflation came in lower than expected at 3.8 per cent in September.
The Bank of England is expected to hold base rate at 4 per cent this month but a rate cut in December is now back on the cards.
Some major lenders, including Nationwide, seem to have priced this into their mortgage rates, with the best deal on offer since the 2022 mini-Budget arriving this week from the building society at 3.64 per cent.
Savers will fear it’ll mean cuts to savings rates. It is entirely possible to find rates that beat inflation – the Bank of England says the average rate was 3.82 per cent in September, a smidgen more than inflation – but many are parking cash, earning a pittance, with major banks.
Which leads me on to a big change happening just after the Budget.
The Financial Services Compensation Scheme limit is likely to rise to £110,000 on Monday 1 December – a higher limit set thanks to inflation over the past five years.
We revealed this news earlier in the year, but the FSCS has recently confirmed to us a higher limit is still on track for December, with most banks able to implement it immediately.
That’s an extra £25,000 protected in each applicable bank – and this bigger safety net could convince households to park even more money in cash.
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