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Savings rates and product choice plunge to record lows
Interest rates have fallen to record lows while providers are pulling deals at pace as the “catastrophic impact” of coronavirus on the savings market is revealed.
The average savings rates for easy access, fixed bonds and ISAs have fallen to their lowest levels as the market continues to deteriorate following the effects of the Bank base rate cut to just 0.1%.
Data from Moneyfacts revealed that the average easy access rate has dropped to a record low of 0.30% and may fall further. But despite the low rate on offer, starved savers deposited £10.5bn into these interest-bearing accounts.
As well as rates being chopped, savers also have less choice as providers continue to withdraw deals.
The number of savings products (excluding ISAs) has tumbled to the lowest level since Moneyfacts started collating the data in 2007. It suggested this may be because providers can no longer sustain them in the low interest rate environment as deposits surge.
Today there are 1,133 deals, down from 1,212 last month and 329 deals less than the start of 2020.
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Including ISAs, the total number of savings deals stand at 1,456, the lowest level seen since November 2016 (1,438).
However, Moneyfacts noted that the only average rate not to fall to a record low has been for notice accounts.
Rachel Springall, finance expert at Moneyfacts, said it’s clear to see the coronavirus pandemic and subsequent base rate cuts have had a “catastrophic impact” on the savings market.
She said: “Providers are facing an influx of deposits and need to quickly manage the flow of cash by adjusting the rates in their range or withdrawing their lucrative offers entirely.
“Savers may well have more disposable income as a result of the UK lockdown, and perhaps wish to safeguard this money by using a savings account. Easy access accounts continue to be a firm favourite among savers, but more so for their convenience than for the interest they can earn. Indeed, with the unsettled landscape the coronavirus pandemic has instilled, savers may wish to have an emergency fund built up that they can access quickly for peace of mind.”
Springall added that more cuts may be on the horizon as savings providers could see even more cash come their way in the months to come, filling their subscription limits quicker than expected.
She said savers looking to use their ISA allowance will be disappointed to find that all average ISA returns have dropped below 1% for the first time since December 2016.
“The drop has been more severe on fixed ISAs, with the average rate on one-year ISAs and longer-term ISAs falling by 0.40% and 0.44% respectively since the start of 2020. The choice of ISAs overall has also fallen, by 74 deals since the start of 2020. This then does not spell a positive outlook for the rest of the year.”
Savers are urged to act fast to secure the best deals in the low interest environment.
“If savers are about to come off a fixed deal, they best brace themselves for disappointment when searching for a similar deal,” Springall said.