Squeezed British households raided their accounts in May, withdrawing a record £4.6bn from banks and building societies as the cost of living crisis and inflation continue to bite.
It was the highest net withdrawal figure since monthly records began in October 1997, according to the Bank of England.
It comes as mortgage costs continue to soar for borrows on the back of interest rate rises, while banks have been slow to pass on the higher rates to savers.
The average five-year fixed-rate homeowner mortgage is edging closer to 6 per cent, according to figures from a personal finance website. Across all deposit sizes, a typical five-year fixed-rate residential mortgage on the market on Thursday had a rate of 5.94 per cent, up from 5.91 per cent on Wednesday, Moneyfactscompare.co.uk said.
The average two-year fixed residential mortgage rate on Thursday was 6.37 per cent, up from an average of 6.30 per cent just a day earlier.
Rachel Springall, a finance expert at the website, said: “The uncertainties surrounding mortgage interest rates will be a concern for borrowers who are about to come off a fixed-rate deal, or indeed those who are sitting on a standard variable rate.
“Those still locked into a low fixed-rate would be wise to consider overpaying on their mortgage if they can, to reduce the term of their deal.”
Rates have been on the increase again amid expectations that interest rates will need to stay higher for longer as the Bank of England tries to tackle persistent inflation.
Around 2.4 million fixed-rate deals are due to end between now and the end of 2024, according to figures from UK Finance.
However, savers have yet to reap the benefits of higher interest rates – although HSBC UK and First Direct both unveiled plans to help savers on Thursday.
Customers with an online bonus saver account will be able to earn 4 per cent in interest on up to £50,000, whereas previously they were only able to earn this amount on up to £10,000. HSBC is also making a 0.40 percentage point rate increase to its instant access premier savings account (taking it to 2 per cent) and its flexible saver account (pushing it to 1.75 per cent).
Alice Haine, personal finance analyst at investment platform Bestinvest said: “High street lenders have come under fire in recent days for failing to pass on interest rate rises to their customers with some accounts still offering rates as low as less than 1 per cent.
“Despite better savings rates on the table, households raided their savings pots, withdrawing £4.6bn from banks and building societies on net, compared to net deposits of £3.7bn in April – the highest level of household withdrawals on record.
“While many may be dipping into savings to meet rising living costs, savers should still shop around for the best deal available to them to ensure their money is working as hard as possible.”
The annual growth rate for consumer credit, which includes borrowing using credit cards, personal loans and overdrafts, eased slightly in May, reaching 7.5 per cent, compared with 7.6 per cent in April.
While many may be dipping into savings to meet rising living costs, savers should still shop around for the best deal available to them to ensure their money is working as hard as possible
Alice Haine, Bestinvest
Meanwhile, the number of mortgage approvals made to home buyers increased from 49,000 in April to 50,500 in May. Approvals for remortgaging saw a rise from 32,500 to 33,600 during the same period.
Lucian Cook, head of residential research at Savills said: “The marginal improvement in mortgage approvals for house purchase in May occurred in the run up to the recent repricing of debt. Even so, it reflects a market which has become increasingly weighted to, and reliant upon, cash and equity rich buyers. The June number will be more telling given the timeline of turbulence in the mortgage markets.”