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Savings rates lag pre-pandemic levels despite three base rate hikes

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Some ISA products have seen the biggest month-on-month rate rises in a decade, but average savings deals still trail those seen at the onset of the pandemic, despite three base rate hikes.

In March 2020, the Bank of England made the unprecedented move in lowering the base rate from 0.25% to 0.1% – the lowest ever level in its history.

Savers had to make do with pitiful interest rates on their cash, but since December 2021, the base rate has been increased three times, giving people some hope amid the cost-of-living crisis.

This is because in theory, an increase in the base rate should be reflected in higher savings rates.

However, data from Moneyfacts revealed that average rates still lag those seen in April 2020, when the base rate was at a record low.

As an example, the average easy access rate in April 2020 stood at 0.51% but today, it stands at 0.33%. The average easy access ISA rate was 0.79% two years ago, but today it’s less than half at 0.38%.

But, the data also revealed that the average easy access ISA rate recorded its biggest monthly rise since April 2012, up from 0.30% in March 2022 to 0.38% now.

The average one-year fixed ISA also saw the biggest month-on-month rate rise since August 2011, rising from 0.72% in March 2022 to 0.87% now. This is the highest point since May 2020 when it stood at 0.91%.

Rachel Springall, finance expert at Moneyfacts, said: “The ISA market has seen the highest uplift in average rates month-on-month in a decade. Those savers who are comparing deals to use their 2022/23 allowance will find much better rates on average compared to a month ago, both for variable and fixed ISAs. The improvement to the market over the past year is positive as it’s worth noting that rates fell to record lows in 2021. Compared to a year ago, both the average one-year fixed ISA and longer-term fixed ISA rates have more than doubled.”

She said that competition coupled with back-to-back Bank of England base rate rises are “elevating interest rates across the savings spectrum”.

“The rate war that has raged within the top rate tables for both fixed bonds and ISAs month-on-month will be positive news for savers who want to lock their cash away for a higher return than they could receive on a variable rate,” she said.

Springall added that as interest rates rise, savers may wish to keep their money close to hand so they can switch quickly for a higher return.

“In the months to come, providers may well improve rates further, and we are already seeing competition return to this sector from challenger banks, some of which are paying 1% or more. However, it may be some time yet before savers see variable rates return to pre-pandemic levels.

“Whether savers choose an easy access account or fixed, it’s important for them to be conscious of the shelf life of a deal, as this month the average shelf life of a fixed bond fell to 55 days, the lowest number of days since 2021. Keeping a close eye on the market is crucial both for savers to secure a top rate, and for savings providers to keep ahead of the competition,” she said.

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