Last week's budget might have offered some good news for savers, but in the short-term there's not much to be optimistic about. In fact, Moneyfacts' figures reveal that savings rates are continuing to fall across the board – despite it being hoped that they'd start to creep back up again.
The latest UK Savings Trend Report, published earlier this week, showed that almost all sectors of the savings market saw a considerable fall in rates over the last month with the exception of the no notice sector, which saw an increase of 0.01%. This puts the average no notice rate at – wait for it – 0.65%. Hardly something to get excited about.
The reason for such low rates, aside from base rate being at its record low of 0.5%, is arguably because of the Funding for Lending Scheme (or FLS). This was introduced in August 2012 and gave banks and building societies access to cheap funding that they could then loan out to consumers and businesses, meaning they needed to rely less on deposits from savers – and didn't compete for their money as a result.
This led to a swift and noticeable drop in savings rates. For example, on 1 August 2012 the average rate for a long-term fixed account was 3.38%, but this had fallen to just 2.65% in the space of three months. And they've been falling ever since.
It had therefore been hoped that, if the FLS was to be removed, it would have the opposite effect and would see savings rates start to nudge back up. Unfortunately that hasn't been the case.
In November 2013 it was announced that the FLS would be withdrawn for residential borrowing, and this withdrawal came into being in January this year. As yet the much longed-for reversal of rates hasn't happened, and rates are instead continuing on their downwards trajectory to reach fresh lows – currently, the average long-term fixed account offers just 2.12% in interest, and if you want easy access to your money you'll get just 0.65%.
It's tough times for the nation's savers, but there are hopes that the market will revive in the not-too-distant future. The Budget has been a catalyst, not to mention the ongoing promise of an increase to base rate, so will things change now the savings market has been given a boost? Will the NISA mean providers update their range and offer better rates? Will the FLS finally start having a positive impact on the savings market after a delay?
Time will tell, but in the meantime there are still some good deals to be found – if you know where to look. Fixed rate bonds tend to be the account of choice for those looking to secure the best interest so check out our top picks, and don't forget about ISAs (particularly inflation-beating ones) to make the most of your tax-free allowance and generate a measurable return.
Compare the best ISA rates
Compare the best savings rates
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