Banking group NatWest has said that customers dealing with the higher cost of living and soaring interest rates are moving their money to higher-interest savings accounts.

The business said that 15% of its customer deposits are now in fixed-term accounts which pay better interest rates, up from 8% in the first quarter of the year.

Finance boss Katie Murray said the rate of movement from current accounts to savings accounts had slowed in September and October and that she expects around 17% of deposits to sit in such accounts by the end of the year.

It contributed to the bank’s net interest margins dropping in the three months to the end of September, hitting around 2.94%.

The bank downgraded its forecasted net interest margin for the year from 3.2% to 3.15%. Shares fell 13% on Friday morning.

Some of the bank’s loans to customers which were made during the Covid era also had higher margins than the lower margin loans replacing them today, it said.

Yet the company managed to grow profit to £1.33 billion in the quarter, up nearly 23% from £1.09 billion a year earlier.

It fell slightly short of the £1.36 billion that analysts had expected the bank to make.

NatWest Group, which owns Royal Bank of Scotland and Ulster Bank, said its income had increased, helped by increases in the amount of money it was lending and more income from its market division.

The bank issued £7.5 billion in new mortgages during the quarter, compared with £7.6 billion in the previous three months and down from £11 billion in the same period last year.

The business said that operating expenses at its retail banking division had risen by £91 million, or 14.4%, as it increased pay and made losses from the termination of property leases.

It saved some money by reducing headcount by 3% at the division, NatWest said.