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Savings take a hit at building societies

30 July 2009 / by Andy Davies

Savings withdrawals from building societies in June this year totalled nearly £2.3billion, which is the largest monthly outflow since records began in 1955, the Building Societies Association has revealed.

This is compared to the same period last year when there was an inflow of an estimated £419million as savers decided to invest their money in building societies rather than banks, as they seemed a more secure option in the wake of banks collapsing.

However, as banks have begun to stabilise it seems many people are returning, as they are able to offer more competitive interest rates for savers.

Reacting to the news, Brian Morris, head of savings policy at BSA, said he is not surprised by these figures and expects this trend to continue into 2010.

He said: "The withdrawal experienced by the building society sector is not unexpected given the very challenging economic backdrop.

"With rising unemployment, subdued income growth and the official Bank Rate at an historic low, it is very difficult to attract retail savings.

He adds that with the low interest rates, "households are looking to take advantage and pay off debt rather than save".

While large amounts of savings are being withdrawn, according to the BSA, mortgage lending is showing signs of stabilising.

In June this year lending totalled nearly £2billion, which is a 30 per cent rise on the previous month. However, compared to lending in June 2008 it is a 40 per cent decrease, when building societies handed out an estimated £3.3billion.

© Fair Investment Company Ltd