Pandemic savings glut could trigger further rate cuts
Cash account returns are now at an all-time low, with the average easy access rate standing at just 0.18%, down from 0.59% this time last year.
The average one-year fixed rate bond has also dropped sharply from 1.20% in January 2020 to just 0.49% now.
Meanwhile ISA savers have also been hit hard with the average notice rate plunging from 1.12% in January last year to 0.44% this year.
The data from Moneyfacts, revealed that all average savings rates have fallen month-on-month, reaching new lows since the start of their records in 2007.
It also found that product choice fell slightly in the month. There are now 1,437 savings deals, including ISAs, which is 348 fewer than a year ago.
‘Market remains unpredictable’
Rachel Springall, finance expert at Moneyfacts, said as Brits are in the depths of another lockdown, more accidental savers will be scoping out top savings deals should they accumulate disposable income.
“According to a study by the Office of National Statistics (ONS), the household savings ratio during Q2 2020, which coincided with the national lockdown, hit 27.4%, an unprecedented figure and a record high since it was first tracked over 50 years ago.
“This high ratio could then result in a large flow of cash into savings vehicles during uncertain times, with consumers’ cash protected up to £85,000 by institutions covered by the Financial Services Compensation Scheme (FSCS). This latest lockdown could mean a further demise in savings rates on offer as providers may struggle to cope with demand and fill their desired subscription targets much too quickly.”
Springall added that one of the most popular savings vehicles continues to be easy access accounts, perhaps not a surprise during a period of economic uncertainty due to their flexibility.
She said: “The latest Bank of England statistics show that the inflow into interest-bearing sight deposits hit near £13bn during November, a rise from £7.3bn in October, and since January an inflow of around £84bn. It is important that savers do shop around if turning to an easy access accounts, as rates start as low as 0.01% with some of the high street banks.
“As a go between, savers may consider a notice account, but unfortunately these have also been hit with decimating rate cuts in recent months and some providers resorted to pulling products or leaving the market entirely.
“It is hoped that the onslaught of rate cuts and withdrawals across the savings market will slow compared to 2020, but there is still room for providers to make further cuts and adjust their savings ranges as a whole depending on the levels of demand they may face this year. If savers want to be in with a chance of getting the best possible return on their cash, then they would do well to keep a close eye on the market and sign up to rate alerts, as the market remains unpredictable.”