2020 savings interest rates review

Savers hoping to see savings rates starting to improve during 2020 had their hopes dashed in March when the Bank of England cut base rate to a historic low of 0.1% in response to the economic uncertainty caused by the Coronavirus. Throughout this year, interest rates have remained low, which combined with other factors such as the introduction of a new funding for lending scheme in April, has resulted in savings rate remaining low this year.

Here, we’ve looked at what has happened to average savings rates across the different charts during 2020.

This year’s economic uncertainty resulted in many savers looking to put their money into easy access savings account, which would enable them to have quick access to their funds. Year-on-year, the average rate on easy access savings accounts fell by 0.42%, down from 0.61% on 1 December 2019 to just 0.19% on 1 December 2020. While this would have been a disappointment for savers, those looking to lock into a long-term fixed account would have seen average rates fall even further, with the average rate on a five year fixed rate bond falling 0.80% year-on-year, down from 1.77% to 0.97%.

Although savers have not had much good news this year, there was still some competition within the market and new banks were launching saving products, but savers had to act quickly to get the best rates as many were withdrawn within days of being launched.

“Competition has not died out completely but is a small glow in comparison to the uplift seen a year ago, largely fuelled by challenger banks and mutuals attempting to offer their customers a reasonable rate of interest,” explained Rachel Springall, finance expert at Moneyfacts.co.uk. “However, many top rate deals were withdrawn in just a few days, so savers speed has been crucial to acquire the top rates, particularly if they were looking for an easy access account in 2020. The rate cuts by National Savings and Investments coupled with an already low interest rate environment has pushed the average easy access rate to a record low of 0.19%.

“Those savers looking for a higher rate of interest may turn to fixed bonds, and this year the average five year fixed bond rate has dropped the most compared to the one and two-year alternatives, falling by 0.80% compared to December 2019. Those savers who only wish to lock their cash away for a year will find the average one year fixed bond has fallen by 0.71% year-on-year, so based on an investment of £20,000 that is a reduction in interest of £142 over one year.

“Savers who are putting money aside for their first home or retirement can still take advantage of the Government bonus provided on a Lifetime ISA and those savers on low incomes can still utilise the Help to Save Scheme, as these have remained on the table in 2020. Tax-free allowances, such as the ISA allowance and Personal Savings Allowance, may not change in 2021 but the Government could well review them due to the country’s deficit, so this is worth keeping in mind.

“Looking towards 2021, interest rates are unlikely to rise over the next few months and there have even been murmurings of a potential base rate cut to come, so there really is no guarantee savings rates won’t continue to fall. Regardless of any apathy a low interest rate environment may instil in savers, it is imperative they take action to switch their accounts to get the best possible return on their cash and continue to keep a close eye on the market.”

Savers wanting to get the best savings rates can keep up with the best deals by regularly checking our savings comparison charts.