What's happened to your savings in the last few months? Well, as far as the savings market as a whole was concerned, the first half of 2016 has been a total wipeout. In fact, our latest research shows that, since the start of the year, savers have witnessed a huge number of rate cuts, which have caused rates to plummet to new lows.
The data highlights how much things have taken a turn for the worse. For example, the average five-year fixed rate bond has fallen by a whopping 0.63% since January this year, while the average two-year rate is down by 0.40%. Take a look at the table below for more details.
"Savers have been fighting an uphill battle to get a decent return in the first half of this year," said Charlotte Nelson, finance expert at Moneyfacts. "Indeed, over 900 individual cuts to savings rates have occurred since January, which is shocking considering that there have only been 111 rate increases over the same period. As a result, it's not surprising that many have begun to wonder if the cuts will ever end."
Lack of competition
There's a definite reluctance to compete among providers, and it looks as though the positive competition that was kick-started last year by challenger banks has been short-lived. "The harsh reality kicked in during the early months of 2016, and rates subsequently fell to record lows," added Charlotte.
"Providers at the top of the best buys are pounced on by savers who are desperate to secure a decent interest rate, and as a result, these deals rarely remain on the market for long. Therefore, providers who want to be at the top of the market only need to offer a reasonable return to move into prime position."
However, wider market conditions are also having a keen impact, particularly when it comes to SWAP rates. The dramatic fall in these rates has had a negative impact on the fixed savings market as it's now cheaper for providers to fund their lending activities – they simply don't need savers' cash as they've already got access to cheap wholesale funds, so they don't need to compete in terms of interest rates.
But just what happens next? Well, speculation of a cut to base rate means that the future isn't looking any brighter, as Charlotte concludes: "Mark Carney's announcement that the Bank of England Base Rate could fall past its record low of 0.50% in the near-future means that savers need to brace themselves for even tougher times ahead. If a good deal is to be secured, savers will have to shop around and work hard, and keep a close eye on the market."
Rates may be falling, but that makes it even more important to make sure you're getting the best deal possible. Check out our savings best buys to see if you can get better returns from your money.
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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