The Goldman Sachs UK online savings account, Marcus, has closed to new business after a deluge of deposits by cash-rich British households during the coronavirus pandemic left it close to busting regulatory limits.

More than 500,000 people have opened accounts with Marcus since its launch in 2018, lured by table-topping interest rates. It is understood that in recent months billions of pounds have poured into the account from households that have slashed their spending during the pandemic, pushing total deposits at Marcus up to £21bn.

Goldman Sachs has taken the move to “temporarily” halt new deposits for fear that it could hit the £25bn level, the point at which the Bank of England demands that the money is held in a ringfenced separate financial institution.

Ringfencing would require Marcus to become a separate legal entity with its own board and keep the money separate from Goldman Sachs’ investment banking arm. It would add to costs and make it less likely that the bank could offer attractive rates.

By historical standards, the rates of interest on offer at Marcus were low – only 1.05% on its online savings account at the point of closure and down from 1.5% at launch in 2018. However, in a world of near-negative interest rates – and with the average UK easy account now paying only 0.3% interest – the opportunity to earn even 1.05% from a major financial institution resulted in Marcus being besieged by savers.

The volume of cash gushing into Marcus’s UK operation made it larger, relative to population size, than even Marcus’s homeland US unit, where it has taken $50bn (£39bn) in deposits.

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, said: “The savings market has been engulfed by waves of cuts over the past few months and Marcus’s easy access account has been washed ashore. These waves are self-perpetuating. The most competitive account attracts too much money, so the bank cuts back. This puts a new account in the frame, which attracts more money and then makes a cut, and so it continues.”

Coronavirus has added a new dimension, with “forced savings” of unspent money expected to reach £57bn this year. Most of the savings have been built up by already well-off households, with the richest 20% of Britons reducing their spending by about £23bn, according to analysis by the New Policy Institute.

Goldman Sachs said existing Marcus customers would be unaffected by the closure to new business. They will still be able to manage their accounts and withdraw money as usual.

Des McDaid, managing director of Marcus by Goldman Sachs, said: “We are temporarily not accepting new applications for our Marcus online savings account in order to manage our rate of deposit growth. This step will allow us to continue providing great value to our existing customers. We remain committed to expanding our UK retail business in future.”

Where are the best UK savings rates?

Cash no longer able to be deposited at Marcus will be searching for a new home, amid what the data provider Moneyfacts last week warned is a “race to the bottom” on savings rates.

The most likely destination for coronavirus cash will be National Savings & Investments, which axed planned cuts to support savers through the crisis and is paying instant access rates of between 1% and 1.16%. However, the 100% government-backed institution also appears to be deluged and is warning savers that its phone lines are “very busy”.

NS&I is likely to be under severe pressure to cut rates as the government can raise money more cheaply on bond markets, where it recently issued a ‘gilt’ that pays interest of -0.003%.

Meanwhile, the physical queues that greeted the reopening of Ikea stores may be repeated in digital queues for rates on offer at Ikano Bank, owned by the Kamprad family, who founded Ikea, although it is formally an independent financial entity to the store group. It is paying 1.01% for instant access, or 1.21% for a one-year bond, although savers will have to rely upon the Swedish compensation scheme if the bank fails.

Saga, the travel and financial group aimed at the over-50s, has a deal to offer savings effectively managed by Marcus and since its launch its rates have moved in virtual lockstep with any Marcus rate changes. However, a Saga spokesperson said: “There are no immediate plans to remove the Saga accounts from the market. The Saga products are offered through a long-term strategic partnership between Goldman Sachs and Saga and are separate to those offered through Marcus by Goldman Sachs.”