Savers pull millions from cash ISAs

Savers are pulling millions of pounds out of ISAs, building societies have reported, with £212 million withdrawn in December alone as low interest rates and the weakening economy deter people from saving.

While people are withdrawing from cash ISAs – which have seen the most rapid drop in rates among savings products – the amount of money paid into all building society accounts jumped in December, with deposits made by people who received compensation for failed bank Icesave thought to be partly responsible.

In total, people put £897 million into building society accounts in December, up from £636 million the previous month. While confidence in banks has waned, many people see building societies as a much safer bet.

But despite the seemingly huge rise, the amount deposited is small compared with 12 months ago. More than twice as much money – £1.8 billion – was ploughed into building societies in December 2007. The Building Societies Association attributes this disproportionately high number to panicked Northern Rock depositors, who at the time sought safety in building societies.

It is also down to the fact that consumers just do not see any point in saving. Nearly three quarters of people told a recent survey that they did not think putting money aside was worthwhile; 73% of adults told the Association of British Insurers they thought the benefits of putting money aside have fallen during the past year.

Alongside falling interest rates and the widespread job losses forcing people to withdraw their cash, climbing utility bills have meant a rainy day fund is something few people can afford.

Mortgage lending

The Building Societies Association reported that mortgage lending also remained depressed in December. Gross mortgage lending was £2.3 billion, down from £2.5 billion the previous month.

BSA director general Adrian Coles said: 'House prices are widely expected to fall further and unemployment is rising, so potential buyers remain cautious and are staying out of the market as they wait for it to stabilise.’

The Bank of England also reported its own lending figures today, showing that the £2.2 billion increase lending to individuals in December was higher than the November increase, although mortgage approvals remain close to historic lows.

The twelve-month growth rate slowed further, to 3.6%.