David Prosser: Savers' flight to safety appears to be at an end

Outlook There are two ways to look at yesterday's data from the Government-backed savings bank National Savings & Investments, which reported a net withdrawal of funds from its accounts by savers over the three months to the end of June. One conclusion might be that the flight to safety is now over. NS&I's balances doubled to more than £12bn over the 2008-9 financial year, as savers sought to deposit their funds with institutions where 100 per cent of their cash was guaranteed. If savers are now moving money back out of NS&I, it suggests they no longer feel the need to rely on that Government backing – and that they are less wary about banks and building societies going bust.

The alternative reading is that in a marketplace where interest rates are lower than at any time in living memory, savers are desperate to find the best possible returns on their cash and are therefore deserting an institution that doesn't pay top (or even medium) dollar.

Both explanations are, of course, linked – savers feel able to seek out better rates only when they become less concerned about safety – and the speed with which NS&I's inflows have turned into outflows is a good indication of just how difficult life is right now for those who depend on savings income. The best variable rate savings accounts now pay just a fraction over 3 per cent a year, which is barely enough to cover the cost of inflation and income tax.

It is easy to forget that in the UK savers outweigh mortgage borrowers by seven to one. With their incomes set to be squeezed for some time to come – there is little prospect of a rise in interest rates this year – savers are victims of this slowdown just as much as those losing their jobs because of the recession.