Figures from the Building Societies Association (BSA) have revealed that consumers are opting to repay debt rather than save amid the historically low interest rate environment.
According to the BSA, savings balances held by building societies fell by £-929 million in October compared to an increase of £545 million a year ago, when interest rates stood at 4.5%.
Excluding any interest added to building society savings accounts in the period, £1,240 million was withdrawn from building society savings accounts in October, compared to a net receipt of £115 million a year earlier.
Commenting on the figures, Adrian Coles, director-general at the BSA, says: “There is little incentive for people to increase savings whilst the Bank rate remains at its current low level, and many may opt to repay debt instead.
“This is reflected in a reduction in savings balances at building societies this month. Building societies and other deposit takers are also facing heightened competition from institutions with a government guarantee, which is creating further distortions in the savings market,” added Mr Coles.
The figures came as the Bank of England revealed that the number of mortgages approved for house purchase rose for the eleventh consecutive month in October.
Mortgage approvals for house purchase grew to 57,345 in October, a marginal rise from the 56,205 rise reported in September, but a rise of 18% compared with a year earlier.
In the meantime, the Bank also revealed that British consumers repaid the highest amount of unsecured credit on record during October, cutting their debt at double the rate economists had forecast.
According to the Bank, borrowing on credit cards rose by £134 million in October compared with the previous month, but was more than offset by the £713 million in other forms of consumer credit such as bank loans, loans for cars, and hire purchase agreements.