UK households added £5.4 billion to bank and building society deposits in May, with Cash ISAs accounting for £3.1 billion of inflows as the “dash for Cash ISAs” continues.
Fixed-rate accounts also attracted £1.3 billion, while money moved out of easy-access accounts despite rates holding steady. At the same time, mortgage activity showed signs of softening, with approvals falling to 56,200, below the recent six-month average, as average new mortgage rates rose to 4.22%.
Sarah Coles, head of personal finance at AJ Bell highlights the data
“The dash for Cash ISAs in May, on the back of a £12 billion boost in April, lays bare the unintended consequences of cutting the Cash ISA allowance. This tax year is the last chance for under 65s to pay in up to £20,000 before their allowance is cut to £12,000 from 6 April 2027.
It means they’re filling their boots while they can. For a policy that was intended to encourage people to move away from cash and towards investing, this is hardly the result the government would have been hoping for.
Cash plays a vital role in everyone’s lives, and anyone of working age typically needs enough to cover three to six months’ worth of essential spending in an easy-access account – plus money for any planned one-off expenses in the next five years.
However, beyond that, it’s worth considering if a Stocks and Shares ISA could be a better home for a portion of your portfolio. In the short term you may see the ups and downs of the stock market, but in the long run, it has a far better chance of beating inflation, so you can build a valuable nest egg.
There was some account juggling during the month, with money coming out of easy access accounts. However, interestingly, savers were also moving into fixed rate accounts. Inflation expectations at the time, plus competition in this market, have nudged rates higher, while easy access rates stagnated.
Savers are realising the benefits of fixing savings that they won’t need for a period in return for more interest.
Mortgage approvals dropped in May, as some of the enthusiasm from buyers in the early spring slowly seeped out of the market. At this stage, there was no end in sight for the Iran war, and inflation expectations had pushed mortgage rates higher through March and April.
We will have to wait and see whether the peace agreement and more optimism emerging in June persuades buyers back to the market, or whether the recent turmoil has persuaded them that now isn’t the time to take a leap of faith in the property market.”
