Choice for savers at an all-time low
Average savings rates have also fallen below 1% for the first time
15th July 2020 11:14
by Stephen Little from interactive investor
Average savings rates have also fallen below 1% for the first time
The number of savings deals on the market has reached an all-time low, with rates falling below 1% for the first time.
According to Moneyfacts, there are currently 1,398 deals available to savers, the lowest count since its records began in 2007.
The financial product data provider says that since 1 March the number of products available has dropped by 370, with all savings rates falling except for those on notice accounts.
All average saving rates have fallen below 1% for the first time on record, Moneyfacts says.
Savings market analysis – average rates
Jan-20 | Jun-20 | Jul-20 | |
Average easy access rate | 0.59% | 0.30% | 0.24% |
Average easy access Isa rate | 0.85% | 0.45% | 0.37% |
Average notice account rate | 1.03% | 0.69% | 0.54% |
Average notice Isa rate | 1.12% | 0.69% | 0.60% |
Average one-year fixed rate bond | 1.20% | 0.86% | 0.70% |
Average longer-term fixed rate bond | 1.48% | 1.05% | 0.92% |
Average one-year fixed rate Isa | 1.15% | 0.75% | 0.61% |
Average longer-term fixed rate Isa | 1.37% | 0.93% | 0.80% |
Source: Moneyfacts, July 2020
In the one-year bond market 63% of savings providers made cuts or pulled deals entirely from the market in June.
Some banks pulled out of the fixed-term savings market entirely, including PCF Bank and SmartSave.
A similar picture was seen in the Isa market, with 59% of savings providers cutting or pulling one-year fixed deals during June.
Rachel Springall, finance expert at Moneyfacts, says savers need to act quickly to take advantage of the top rates before providers make further cuts to deals.
She says: “Savers may well feel apathetic in a low interest rate environment to store cash away, but for those who want to build a savings pot in light of the uncertainty that the coronavirus pandemic has instilled, then easy access accounts may well remain a firm favourite due to their flexibility.”
Springall suggests that with some high street banks offering interest rates as low as 0.01%, savers should look toward challenger banks or National Savings and Investments (NS&I) for the best return.
“Overall, the outlook for the savings market appears uncertain and providers will need to continue to adjust their market position if they are dealing with an influx of deposits. As it stands, savings providers may be reaching their desired subscription levels quicker than they expect, particularly if savers put away additional disposable income amassed during lockdown.”
Why are rates falling?
On 19 March, the Bank of England cut the base rate for the second time in nine days to a record low of 0.1%.
This was done to help support the economy amid concerns about the coronavirus pandemic.
As a result of this most banks passed the base rate cuts on to their saving deals in full.
Also, the coronavirus lockdown means many households are spending less and are looking for somewhere to save their cash.
As a result, many smaller providers are unable to cope with the increased demand and have had to withdraw products from the savings market.
The Bank of England has also introduced a new term funding scheme, which allows banks to borrow at rock bottom rates. This means banks have less of a need to attract money from savers.
Best deals
The best easy access deal on the market is from NS&I at 1.16%, which can be opened online with a deposit of £500.
The current highest paying one-year bond is from Allica Bank at 1.05%. The account can be opened online and requires a minimum deposit of £1,000.
If you are happy to put your money away for longer, Al Rayan Bank has a three-year account at 1.21% which can be opened online with a deposit of £1,000. This is a sharia compliant account and therefore the rate is an expected profit rate (EPR).
EPR is not guaranteed, but no British sharia deal has ever failed to pay the advertised rate.
This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.
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