It hasn't been a good year for savings rates, and unfortunately, there's no sign of things changing in the near future. In fact, average rates are plummeting ever lower, and our latest figures show a particularly significant downturn in the fixed sector of the market.
The figures, taken from the latest Moneyfacts UK Savings Trends Treasury Report (due to be published tomorrow), show that long-term fixed rate bonds and ISA rates have fallen dramatically for another month. Indeed, long-term fixed rate ISAs have now fallen for 11 consecutive months, and have plummeted to all-time lows yet again.
The table below shows just how dramatic the rate cuts have been, and thanks to the cut to base rate, there's likely to be no end in sight.
"This month savings rates have been hit hard, with dramatic falls following the Bank of England's announcement to cut the base rate to 0.25%," said Charlotte Nelson, finance expert at Moneyfacts. "The long-term fixed sector has borne the brunt of the rate cuts, with the long-term fixed ISA rate down by 0.23% (to 1.15%) and its long-term non-ISA equivalent falling by 0.22% (to 1.34%) in just one month.
"This reduction in the longer-term rates reflects the uncertain nature of the markets at large, as well as providers' lack of desire to secure longer-term funding. With a low-interest environment predicted for some time to come, institutions do not want to be caught out paying higher rates than needed in future."
More cuts to come?
Providers simply don't need our cash, which means they're not going to offer higher rates in order to tempt us to bank with them. Unfortunately, there's the chance that rates could fall further still – along with the cut to base rate, the Bank of England also announced something called the Term Funding Scheme, and this could have long-term consequences for the savings market.
Under the scheme, providers will be able to borrow money at a generous interest rate, which they can then use to lend to borrowers. It's essentially a similar scheme to the Funding for Lending Scheme, which is what kick-started the downturn in savings rates in the first place, so it looks as though history will be repeated.
As Charlotte points out, "the incentive for providers to use long-term fixed rates or indeed any savings rate to fund their mortgage books will be significantly diminished as a result [of the scheme]" – in a nutshell, they'll have even less need for our cash.
And that's not all. "With consumer confidence in the savings market falling, many savers are now wary of fixing over the longer term," added Charlotte. "They may instead be choosing to opt for an easy access account in the hope rates will increase in the short term, or utilise their funds elsewhere. This lack of demand could potentially cause the longer-term fixed market to fall even further in months to come."
This all means that, if you're looking to benefit from higher rates, snap up a deal while you still can! It may be tempting to opt for easy access, but the beauty of fixed savings rates is that they don't change for the length of the term. This means that even if rates fall further in the months and years ahead, your savings will be protected from cuts and will still be seeing a decent return, unlike with easy access accounts which are often variable rate – and can therefore change at any time.
This is why you'll want to act now. Long-term rates may have already been cut but there's just no telling how low they'll go, and with providers amending their ranges on a regular basis, it isn't worth hanging around. Doing so could be a costly strategy, so check out our fixed rate best buys, and if you see an account that suits, don't delay!
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.