The savings market hasn't exactly had us jumping for joy recently, yet it seems to be quietly moving back in the right direction, as interest rate rises outweighed cuts for the 13th consecutive month in January. Combine this with the upcoming end of the Term Funding Scheme (TFS), and you may well have reason to keep an eye on the savings charts again.
When the Funding for Lending Scheme (FLS) closed last month, we pointed out that rates had already risen year-on-year between January 2017 and 2018. As both schemes will be closed after February and banks will once again have to rely on savers' funds for their lending practices, the current upward trend will hopefully continue.
Our figures show that there were 56 individual rate cuts in January, compared with 126 rate rises. This includes 46 ISA rate rises and 11 ISA cuts. "It's great to see savings rates improving for yet another month, largely fuelled by competition among the challenger banks," said Rachel Springall, finance expert at moneyfacts.co.uk.
"There is also a great expectation for the market overall to improve throughout 2018, thanks to the recent closure of the FLS and impending closure of the TFS. This may seem too good to be true, however, as lenders still have four years from their transaction date to lend out the funds, which will interrupt the demand for savers' deposits."
Rate rises will be especially welcome as inflation is still at 3.0%, according to figures released this morning. Further increases to the Bank of England base rate could help offset this, with Rachel stating that "some economists are predicting a rise in May, whereas others suggest it may happen in August … However, as we have seen before, there is no guarantee that savings rates will rise in line with the base rate."
Indeed, around 50% of the easy access market still pays a rate that is below base rate, which currently stands at 0.50%. A lot of these sub-par rates are offered by high street banks, which reflects how important it is for savers to shop around and look beyond the familiar brands.
"Challenger banks have proven that they are worthy of savers' attention, and because they are also covered by either a UK or EU compensation scheme, they are just as safe as the well-known brands," Rachel said. "So, savers could well be sacrificing a much higher rate of interest because of their reluctance to move away from a popular brand."
A look at the savings Best Buys will confirm that the best rates are still coming from lesser-known brands, with the most well-known provider on the list likely to be NS&I. Yet all these accounts are just as safe as those with the biggest providers out there, so why not give one a try?
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.