Better rates for savers may not last
Hargreaves Lansdown noted that the rates of interest paid on cash savings have jumped noticeably of late. For example, at the start of the new tax year, the top-paying one-year fixed rate accounts paid 0.65%. However, today the leading account pays 0.85%.
However, the firm cautioned savers against expecting these increased rates to last, warning that the hope they have provided could be little more than a “flash in the pan”.
Why savings rates have risen
An important factor in the rising rates on offer has been the housing market. Demand from buyers is extremely high at the moment, with so many hoping to purchase a new property before the stamp duty holiday ends.
As a result, banks are keen to bring in more money to fund their home loans, and attracting savers ‒ particularly those happy to lock their cash up for a year or two ‒ is one way of doing that.
The fact that so many banks are in this same position, and so are competing for the same savers, has led to the recent rise in interest rates on offer.
Why won’t it last?
However, Sarah Coles, personal finance analyst at Hargreaves Lansdown, warned that there is a danger that the housebuying boom will burn out over the summer as it becomes clear that would-be buyers don’t have time to complete their purchases before stamp duty returns to its previous thresholds.
There’s also the fact that the providers topping the best buy tables are typically smaller names, rather than the big high street names, like Atom Bank or Gatehouse Bank.
Because of that, they have more limited capacity and so may only want to be at the top of the tables for a limited period before cutting the rates on offer.
Coles added: “Looking more broadly, the Bank of England doesn’t expect to raise the base rate until inflation is consistently at or above its 2% target. Under current projections this isn’t due to happen any time soon, and in the next few years it doesn’t expect the base rate to go above 0.6%, so there’s likely to be little reason for market-wide rate rises in the near future.”
Looking for a home for our savings
The nation appears to be in a better position when it comes to savings balances as a result of the pandemic. With retailers and hospitality closed for so much of the last year, it’s meant many of us have been able to save some cash. A study last week by Investec found that the average household in the UK now holds around £4,353 in excess savings, while our savings pots have now reached record highs according to the Office for National Statistics.