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Savings market trends - October 2021

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This month, our savings director Derek Sprawling considers some of the trends impacting the savings market, including an uptick in spending and average balances.

The most recent Bank of England figures show that household deposits with banks and building societies fell by £1.3 billion in August - this is the first-time deposits have reduced month-on-month since January 2020.

This seems to correlate with August being the first full month of 2021 where most of lockdown restrictions were lifted, thus offering the most opportunities for Brits to spend. This is supported by data that indicated the August bank holiday was associated with the most concentrated period of spending since late 2019.

This bucks the trend in the months between April and July, which showed that savers continued to prioritise putting money aside despite the gradual lifting of restrictions. The value of deposits made by households since April, standing at an average of £8 billion, is significantly higher than the average deposits made pre-pandemic, which stood at £5.7 billion in the six months leading up to March 2020.

Is August deposits data an anomaly or indicative of a new trend? Only time will tell, and September figures will likely provide a good indication of spending behaviour in the run-up to Christmas.

However, there are still a broad number of factors that could cause hesitation in matching pre-pandemic spending. The rapid growth of inflation and the ongoing climate of financial uncertainty, with the furlough scheme ending this month, will of course be contributing factors. Many savers will also be putting 'big ticket' spending on hold - be that long-haul holidays, expensive events that require booking and advance planning, or other large, one-off expenditures.

A deep dive into Bank of England data allows the analysis of interesting micro-trends.

Current account spending is up

Firstly, it's clear that the balance reduction in current accounts is a large contributor to this month's trend. August marked the most significant dip in non-interest bearing balances since the pandemic began.

Throughout the pandemic, households have been piling money into non-interest bearing current accounts at a staggering pace, and August is only the second time this upward trajectory has reversed. Since April 2020, balances held in non-interest-bearing current accounts grew by close to 30% on the whole1, which illustrates the scale of built-up savings. There was a small dip in balances in May 2021, aligning to the initial removal of lockdown restrictions, but balances have dipped by more than £1.3 billion between July and August, going from £246.4 billion to £245.1 billion.

This indicates that savers are spending at a faster pace than usual and this is making a dent in their savings 'buffer', accumulated throughout the pandemic due to reduced opportunities to spend.

Interest-bearing market stalled in August

Despite this overall dip in household deposits, the interest-bearing easy access market has remained steady in its pattern of growth. It has kept up a consistent upwards trajectory throughout the pandemic, growing by a fifth between April 2020 and August 2021. Even though the pace of growth slowed in August to just over £2 billion from the previous month, the trend did not reverse.

However, the decline in market share within fixed rate accounts (interest-bearing time deposits) means there was a total average increase of around 10% between April 2020 and August 2021 across the total interest-bearing market. In August, the continued reduction in the fixed rate market counter-acted the smaller-than-usual growth in the easy access category, which meant the total growth month-by-month in the overall interest-bearing category was a small 0.1%. Since the pandemic began the fixed rate bond market has shrank by £19bn or 11.2%.

Average balances are up but many savers still receiving low rates

CACI figures, which combines data from more than 30 providers, does show that although the average balance is on the up, the percentage of accounts receiving a low rate of interest remains high. As of July, 72% of easy access balances still received a rate of 0.1% or less - a proportion that has remained consistent throughout 2021, despite rates showing signs of rising.

As we prepare for what will potentially be an uncertain few months ahead, with high rates of inflation and Government support schemes coming to an end, it's more important than ever for savers to plan for the future and to prioritise building an emergency fund - and one that is receiving a competitive rate of interest. That means savers should make sure that they're aware of the rate of interest they're receiving on their accounts and the options they have to switch from low paying high-street banks to better value challenger banks.

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