Savings market gets a healthy injection of rate rises

Tuesday, 18 August 2015
Research by Moneyfacts.co.uk reveals that the savings market is finally starting to improve, three years after rates were slashed by the launch of the Funding for Lending Scheme (FLS).

Since the start of July 2015, Moneyfacts has recorded 172 savings rate rises, with some increases being as high as 0.74% in places. This dwarfs the 73 rate reductions that have taken place over the same period (of up to 0.41%). As a result, some savings accounts are now offering the best deals seen this year. For example, the top one-year fixed rate bond available today pays 2.06% yearly, the highest rate paid for this account type in 2015 so far.

There is also good news for savers in terms of inflation. The latest figures show that the Consumer Prices Index (CPI) rose from 0.0% to 0.1% during July, which means that savings won’t be greatly impacted by its erosive effects. Unsurprisingly, most of the 888 savings accounts currently on the market beat inflation, and of these 706* (154 no notice, 81 notice, 265 fixed rate bonds and 206 cash ISAs) are without restrictive criteria*.

Savers who invested £10,000 five years ago, however, will have been impacted by the damaging effects of high inflation, tax deductions and low interest rates. Based on the average interest earned from easy access savings accounts and average inflation and tax at 20%, their spending power will have dropped to just £8,716 today.

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:         

“The healthy injection of rate rises into the savings market is largely due to the competitive nature of the challenger banks, but although mainstream providers may still be hesitant to hike rates, it’s still encouraging to finally see some signs of life.

“There is clearly still room for improvement, but savers will find that their money is working harder right now, more than it would have done at the start of this year. For instance, the average one-year fixed rate bond now pays 1.47% - its highest rate this year - compared with 1.43% in January. Similarly, the average five-year fixed rate bond currently pays a high of 2.63%, up from just 2.56% at the start of this year.

“Savvy savers used to be fixated on beating inflation, but today it is having little influence. Two years ago, when inflation stood at 2.90%, a basic rate taxpayer would have needed an account paying 3.63% to beat the effects of inflation and tax, but there were no standard savings accounts that could achieve this return. A higher rate taxpayer would have needed an even larger return of 4.83%.

“Today, savers have a variety of decent deals to choose from, and while many face the choice of locking money away for the highest returns, respectable interest can still be earned from shorter-term fixed rate deals or even easy access accounts that sit at the top end of the market.”

Data Note* Please note that the savings product numbers only include deals that are available to all UK residents. Moneyfacts has chosen not to include products that have limited access, such as locals only, linked products that mean you must have an existing account to obtain headline rates, or those that are exclusive to high net-worth clients. Moneyfacts has taken the view that as these accounts are not available to your entire readership, their inclusion may be misleading to your readers by directing them to accounts they may not be entitled to. We do, of course, hold all of this data should you require it. Our daily Moneyfacts savings rate monitoring started in July 2015 and is a record of live standard savings account changes, which include fixed rate bonds of all terms, all ISAs, notice accounts and no notice accounts.

Notes to editors

Publications are free to reproduce the tables and comments for their readers and the correct sourcing should read Moneyfacts.co.uk. Online publications are also free to reproduce the tables and comments for their viewers by sourcing a hyperlink to Moneyfacts.co.uk on any page that uses the information provided.

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Moneyfacts is the UK’s leading independent provider of personal finance information. For two decades, Moneyfacts’ information has been the key driver behind many personal finance decisions.

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