It's becoming a recurring theme, and unfortunately, it's showing no signs of stopping. Savings rates have plummeted to fresh lows once again as the impact of the base rate cut continues to filter through – and this month, product availability has followed.
The figures, taken from our latest UK Savings Trends report, show that all average savings rates have fallen for a further month, the only exception being the long-term fixed rate, which remains unchanged at its record low of 1.34%. Aside from this, all rates saw a considerable downturn, particularly in the fixed sector, where almost half (47%) of providers withdrew products or made reductions during the month.
As a result, the average long-term cash ISA rate fell by 0.08% to a new low of 1.07%, while the one-year equivalent fell by 0.06% to 0.95%. Similarly, the one-year rate in the non-ISA sector fell by 0.04% to stand at 0.96%, marking the first time on record that both one-year rates have fallen below 1.00%.
The variable sector didn't escape cuts either, with the average notice account rate down by 0.09% to 0.62%, while the cash ISA equivalent fell by 0.06% for the second month running to stand at 0.92%. The average no notice ISA rate fell by 0.05% to stand at 0.77%, with its non-ISA counterpart standing at 0.43% after seeing a reduction of 0.04%. This means that all average rates are now at fresh lows.
Product numbers are on a similar downward spiral, as we discussed earlier in the week, so much so that they, too, have fallen to a record low. There are now 1,445 savings products available, a drop of 73 in a single month and the lowest ever recorded, as well as marking only the second time that the figure has dropped below 1,500.
The total number of cash ISAs has also fallen, with the figure of 276 marking a drop of 27 on a monthly basis, although it isn't quite at a record low. Nonetheless, it's the lowest seen since January 2015 when there were 266 ISAs on the market, and the continued drop is highly unexpected given the time of year – as we're not in ISA season we'd fully expect the market to have stabilised by now, so the fact that it hasn't means that other factors must be at play.
As with activity elsewhere, the reduction can be largely attributed to the base rate cut – which gave providers the green light to cut their own interest rates considerably – together with the huge number of other factors weighing heavily on the savings market at present. This includes the Term Funding Scheme (TFS), which gives providers access to cheap funds they can lend to borrowers, making them even less reliant on savers' funds to balance their books.
Competition has entirely disappeared from the market, with many banks and building societies opting to reduce their rates, or – as is becoming increasingly common – remove products from the market altogether. Not only that, but rates are likely to fall further over the coming months, with many providers having announced rate cuts that are yet to be implemented. The only question now is how low rates can reasonably go, and it's particularly ironic that the Financial Conduct Authority (FCA), the financial regulator, is set to implement new rules designed to help consumers to switch, at a time when there's less choice and lower rates than ever before.
So just why should you switch savings accounts? Rates are being cut on a regular basis and it's becoming harder to even find an account that will beat inflation, so we wouldn't blame you if you think switching is entirely pointless. But it may not be!
Some rates are being cut further than others, and there are still some decent accounts out there if you spend the time to look. Check out our savings best buys and you'll see what we mean – the average long-term rate may be 1.34%, but there are several fixed rate accounts that pay 1.95% if you're willing to lock your money away for five years (and if you fix now, you can avoid any further rate reductions in the coming months).
Similarly, the average notice and easy access account rate may have plummeted below 1% - and even below 0.50% for the latter – but these figures hide far better deals. For example, the top easy access account pays 1.15%, or if you're willing to give a bit of notice to access your funds, the top-paying notice cash ISA boasts a rate of 1.55%!
So don't be too disheartened. It may be harder to find an account paying a measurable return, but they're still out there. You may want to look outside the box and consider high interest current accounts, or even a stocks & shares ISA if you're comfortable with a far higher level of risk. So, start doing your research and see if you can find a better deal.
Compare the top savings accounts
Check out the best high interest current accounts
Find out more about stocks & shares ISAs to see if they could be a solution
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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