Savings rates halve during coronavirus pandemic

Despite households saving more than ever during lockdown, the savings market keeps falling – but some good deals remain.

Savers with unspent income during lockdown should “act quickly or risk disappointment” as rates and product choice continue to fall.

Rates have halved on easy access deals, notice accounts and one-year fixed rate ISAs between March and August, according to Moneyfacts.

Interest has fallen by at least a third on average fixed rate bonds of all terms and longer-term fixed rate ISAs.

August marked the fifth month in a row that average savings rates fell, while product numbers have fallen by 21% since March.

On instant access accounts, by far the most popular savings deal, rates halved from 0.56% to 0.22% between March and August. 

Average rates on one-year fixed savings deals fell from 1.14% to 0.56% since March. 

However, households have been saving at an all-time high since lockdown started. 

Households put £11.6 billion into savings deals in June, primarily across instant access accounts, according to Bank of England data. 

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This came on top of £26 billion in May, £17 billion in April and £14.3 billion in March.

The average rate paid on new deposits is 0.73%, lower by 31 basis points compared to February, according to the Bank.

Bank base rate, which is factored into many savings deals, fell to 0.1% in March, after just a week at 0.25% and down from 0.75% in January.

Rachel Springall, finance expert at Moneyfacts, warned of a “domino effect” of providers pulling offers if more cash floods into the savings market this year.

“Savers wishing to put away disposable income amassed during lockdown need to act quickly or be left disappointed,” she says.

However, a flurry of competition among challenger banks in one-year fixed rate bonds has seen rates nudge above 1% during the past two weeks.

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Oaknorth Bank is currently offering the highest rate at 1.21%, followed by Secure Trust Bank and United Trust Bank at 1.16%.

Still the market is contracting, with the number of savings products reducing by 366 since March, down from 1,768 to 1,402. 

All average rates, across the whole range of savings products, have hit their lowest levels this year since records began in 2007.

“Consumers responding to the recession by looking to put aside cash for an emergency may be disheartened by rates on offer,” Springall says.

“The impact of the pandemic and subsequent base rates cuts have resulted in a trend for rate cutting among providers and, while we expect this to slow down, there are few signs of a market u-turn any time soon.”