The savings market has suffered considerably over the past few years thanks to lending initiatives and a low bank base rate, and latest research from Moneyfacts shows that savings rates have been on a clear downward trajectory as a result.
The figures show that the average rate on a two-year fixed bond has almost halved since 2011, down from 3.20% five years ago to just 1.72% today. A similar pattern can be seen with longer-term bonds, with five-year fixed rates falling from 4.01% to just 2.59% over the same period. Easy access deals have not been left unscathed from poor returns either, with a staggering 75% of this market paying 1% or less.
We've seen an abundance of rate cuts across the board recently as providers remain reluctant to compete, with our figures showing that the number of monthly rate cuts have been far outweighing the number of rate rises in recent months. This reluctance means that pre-tax earnings on a £10,000 investment made into the average five-year fixed bond today would be £142 a year lower than if the same investment had been made in 2011, so the poor returns on offer are clear.
"The start of the year brings bad news for savers due to a growing trend of rate cuts," said Rachel Springall, finance expert at Moneyfacts. "Since the start of 2016, providers cut 140 rates, over six times the number they raised, which stood at a measly 21." This has understandably taken its toll on average rates, a trend that began in 2011 – take a look at the table below to see just how far average rates have fallen in recent years:
Rachel added that it was "disappointing to see the savings landscape going from bad to worse", as currently, it's only smaller banks that maintain an appetite for savers' cash. "Savers may find it difficult to spot any of the big five high street brands in the savings best buys, which have been increasingly filled with the offerings of challenger banks," she said. "Challengers should not have to provide the only crutch for the savings market, but for many months they have been the sole advocates of competition."
There are concerns that impending changes to the banking system, whereby an additional levy will be placed on challenger banks and building societies, could affect the competitive savings deals that these providers are offering, which could make it even harder for savers to find a good deal.
However, for the time being, the choice remains clear – if you're looking for a decent savings rate, it could pay to consider challengers. "If savers are hesitant to invest with these more unfamiliar providers, they could potentially be avoiding the best deals," added Rachel, so why not see what they're all about? Challengers could be the ideal alternative to high street banks, and if you truly want to think outside the box, high interest current accounts could also be worthy of consideration.
Apart from that, all savers can do is hope for a miracle, concluded Rachel: "With base rate set to stay low for some time yet and providers staying focused on pricing down their interest rates for borrowers, savers can do little but sit back and wait for a miracle to happen in the savings market."
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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.
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