Cash savings grew by just 1.4 per cent during the 2017/18 tax year – the lowest rate of growth in more than a decade.
According to new data from UKFinance, the amount of money in fixed term or notice accounts also fell by six per cent, as British savers turned away from the rock bottom rates on offer at High Street banks.
And the amount of money in high street ISAs fell by five per cent during the last tax year, after dropping every month since the previous April.
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“Miserable interest rates on the High Street continue to blunt enthusiasm for cash saving,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.
“In some parts of the market, savers are giving up entirely, with a six per cent drop in the cash in fixed rate and notice accounts and a five per cent fall in cash ISA savings over the year.
“The shunning of fixed rate accounts, meanwhile, has been driven by poor rates on the High Street. With many fixed rate accounts paying below one per cent, savers can’t see the point in tying their money up. The worry is that they are simply giving up and letting their cash roll over into easy access accounts paying a pittance.”
However, the amount of money in easy access accounts on the High Street rose by four per cent over the past tax year, suggesting that savers are still prepared to keep their emergency funds of cash in High Street banks, even if it means earning minimal interest.
Hargreaves Lansdown analyst Coles warned that challenger banks are now poised to overtake traditional banking firms by offering competitive rates to new customers.
“We can only hope that these figures also contain a good proportion of people who are sick of lower rates on the high street and taking their cash to work harder in the challenger banks that don’t show up in these figures,” she said.
“At the moment, the challenger banks are stepping up their game in the one-year fixed market in particular, so you could get an ‘expected profit rate’ of two per cent or interest of 1.95 per cent. At a time of low interest rates, shopping around for a competitive fixed rate for a period that suits you is one of the best ways to make your cash work as hard as possible.”