5.6 million¹ savers claim they've saved less or have stopped saving altogether in the past year. Almost one in ten admit they are just spending their surplus cash as measly rates provide no incentive to save.
A further 9% just leave their cash in their current account as it pays a higher rate of interest than their savings accounts. Based on the average savings amount, an additional £72.6 million a month is saved in current accounts.
More than one in ten consumers (12%) use surplus cash to pay off debts - which could be quite a sensible move. These consumers will erode their debts by just over £97 million a month.
One in five savers (20%) claim they have reduced the amount they save over the past year by an average of £144 each month. This is a total of £806 million which is no longer being deposited into savings accounts.
As savings providers continue to battle it out to reach the bottom of the best buy tables with continued rate reductions, new research¹ from price comparison website money.co.uk reveals the onslaught of a savings exodus as many consumers stop saving altogether.
The research reveals that 5.6 million savers claim that they have stopped or reduced the amount of money they save over the past year by an average of £144 a month.
Amongst these savers, one in ten of those surveyed admitted they now spend their excess cash instead as inadequate returns offer little incentive to save. In total, these savers are frittering away £73 million a month that would ordinarily be stashed away in savings accounts.
For many of the consumers who have reduced or stopped saving, high interest current accounts are offering a valuable lifeline; with 9% saving their surplus cash in their current account in order to secure some interest.
Based on the average monthly savings amount of £263, these consumers are keeping an additional £72.6 million a month in their current accounts. With providers such as the TSB and Nationwide offering 5% AER on balances of up to £2,000 and £2,500 respectively2, this could be the best way to enjoy a decent return.
However, it may not be an option for everyone, as 12% wouldn't trust themselves to have instant access to their savings and a further 8% do not feel their savings would be safe in a current account.
A further 12% of savers are simply using their extra cash to pay off debts which, for some, could be the best course of action if the interest rate on debts is higher than the return on their savings. For example, the average credit card provider in the UK charges around 17.8%³ APR for those that are not on a 0% balance transfer or purchase deal.
This is 27 times higher than the average easy access savings account which pays just 0.66%⁴ AER. Overall, if it's an interest bearing credit card debt, this could be a good option. However, it can still be advisable for consumers to set aside a rainy day fund for emergency or sudden loss of income - once you have used your savings to pay off debts you cannot retrieve them.
Hannah Maundrell, Editor in Chief of money.co.uk, comments:
"Times have changed for savers as providers really are fighting to reach the bottom of the best buy tables, offering returns that make saving money seem like a pointless exercise for many consumers.
"However, just because saving providers are not offering competitive returns at the moment, frittering away your nest egg in this mass savings exodus is not a long term solution; consumers must explore other options.
"For some, it might be as simple as using savings to pay off interest bearing debts or overpaying a mortgage. With the average consumer paying 27 times more interest on their credit card than they would earn in the average easy access savings account this is often a sensible move.
"For those that are disciplined and trust themselves not to dip in, moving savings to high interest current accounts could be the best way to get a decent return. It's not always necessary to close your existing account and switch your day to day banking; some providers only stipulate that you pay in a set amount each month.
"This means savers can open multiple current accounts and set up automatic transfers between each in order to satisfy the minimum monthly deposits."
Note to Editors: 1. Research was carried out amongst 1,773 members of the money.co.uk opinion panel from the 16th to the 20th February 2015. All calculations are based on consumer research and money.co.uk market analysis.
2. Subject to provider terms and conditions.
3. Average credit card interest rate — BOE.
4. Average easy access savings rate — money.co.uk market analysis.
Salman Haqqi spent 10 years as a journalist reporting in several countries around the world. Salman left the world of journalism and moved to the UK to pursue a passion for personal finance and a desire to help people make informed financial decisions.Read Salman Haqqi's articles and guides