Signs of life in UK savings arena as fixed rates rise

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Moneyfacts UK Savings Trends Treasury Report data, not yet published, reveals that all average fixed savings rates rose across the board for the first time since December 2018. 

Providers appear to be competing in this sector and reprices have meant the average shelf life of a fixed rate bond has fallen to the lowest number of days in over a decade. 

Average fixed rates for one year and longer-term fixed bonds as well as ISAs all rose month-on-month for the first time since December 2018.
The average shelf life of a fixed rate bond fell to 36 days from 42 last month, the lowest number of days since August 2009.

Since September 2019, average savings rates for easy access accounts and easy access ISAs have fallen by around two thirds. Over the same period, average notice, notice ISA, one-year bond and one-year ISA rates have halved. The average longer-term bond and ISA rates have dropped by over a third.

The number of live savings products has increased again this month, but year-on-year figures show that the market has contracted by 23 per cent.

Rachel Springall, Finance Expert at Moneyfacts, says: “There appears to be some signs of life in the savings market as providers have recently improved rates on fixed rate bonds and ISAs and special attention appears to have been focused on the one-year sector. This competition means that savers would need to act quickly to take advantage, as the average shelf life for a fixed rate bond has fallen to its lowest point in over a decade, at 36 days, down from 42 a month ago.

“Whilst the uplift in rates is positive, especially as rates had been at record lows only one month ago, it is too soon to tell whether this will be set to continue. Savings rates are still down significantly compared to a year ago, even with fixed rates rising there is still much room for improvement. The average one-year fixed bond rate has risen to 0.65 per cent, up by 0.02 per cent since a month ago, but this is half that of a year ago of 1.34 per cent. Indeed, a year ago savers could get a return of 2 per cent on a one-year fixed bond, but this is unheard of today. 

“Savers may be prioritising access to their cash due to the impact of the Coronavirus pandemic and have perhaps have more disposable income to put aside in case of emergencies. One of the most flexible and simple accounts out there to put spare cash into is an easy access account. Indeed, according to deposit data from the Bank of England, almost GBP53 billion flowed into interest-bearing sight deposits since January, which includes easy access accounts. On the other hand, cash continues to flow out of fixed accounts and in the months to come savers might not want their cash locked away for too long.

“ISA rates and choice of deals has had a notable improvement this month, but the differential in rates between fixed deals outside of an ISA wrapper could deter some savers. Regardless of this, it is vital savers consider utilising their ISA allowance as its tax-free benefits last for years to come, whereas the Personal Savings Allowance, where most UK taxpayers are able to earn up to GBP1,000 of income from savings tax-free, could be pulled with little notice. 

“The number of savings options for consumers is starting to rise, but with the market contracting by 23 per cent since September 2019, savers may understandably be left dejected by such a substantial fall in the choice of deals available to them. As it stands, it is the more unfamiliar brands launching an array of products to tempt savers and it is hoped this will persist in the months to come.

“In light of the uplift in rates and choice this month, savers will need to keep a close eye on the changing market and providers will need to act quickly to cope with excess demand. If providers do indeed hit their desired subscription limits, then they may cut rates or pull deals entirely to manage their exposure in the savings market.”