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Fixed savings rates increase further

Fixed savings rates increase further

Category: Savings
23/08/2017

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The savings market has come a long way as thriving competition has pushed it out of record low territory, and happily, it's continuing to improve, with our latest figures showing that average fixed savings rates have risen once again!

Fixed rate boost

That's according to figures from our latest UK Savings Trends report, which reveal that all fixed rates have seen a rise this month, bar the one-year ISA rate which remained unchanged. In the non-ISA sector, the one-year fixed rate bond rose by 0.02% to stand at 1.09%, while the long-term rate rose by an even greater 0.08% to 1.57%.

This is the first time that the average long-term fixed rate bond has risen above 1.50% since August last year, and is the highest rate seen since July 2016 (1.60%). Even more significantly, this marks the sixth consecutive month that both non-ISA rates have risen, as competition continues to heighten in this sector of the market.

In the cash ISA sector, meanwhile, the one-year ISA rate remained unchanged at 0.95%, but the long-term equivalent rose by 0.06% for the second month running to stand at 1.25%, marking a 12-month high.

Activity wasn't quite as marked in the variable rate sector; here, the average no notice rate remained unchanged at 0.38% for the second month running, while the notice account rate rose by 0.04% to 0.61%, the first time it's risen above 0.60% since last October.

In the ISA market, both variable rates remained unchanged, with the no notice rate at 0.61% and the notice rate at 0.76%.

Signs of life

Despite the lack of upwards movement in the variable sector, this is the first month that no savings rates have fallen since March, suggesting a definite change of direction.

Indeed, some rates are beginning to make up some of the ground lost in the aftermath of last year's base rate cut – at least in the fixed sector – with the average one-year fixed rate now a mere 0.03% below that seen in August 2016, just before the base rate cut was implemented, while the long-term equivalent is 0.01% above its August 2016 level.

This in itself suggests a resurgence in the fixed market, but just why have fixed rate bonds seen such an improvement recently? Well, much of it is down to competition between challenger banks, with these smaller brands vying to make it to the top of the Best Buys.

Challengers compete

As we reported earlier this week, there's been a definite boost in provider numbers
in recent months, as more new banks decide to enter the market. These newer brands, in an attempt to establish themselves, have no option but to compete: many have set funding targets that they need to meet, and they do that by offering competitive rates.

Indeed, many providers use fixed rate bonds as a "tap" that they can turn on (increase rates) or off (reduce rates or withdraw products) depending on their funding requirements, and similarly, when a number of their bonds mature, they'll need to return to that sector to retain their lending stream – which could be behind the latest boost in rates.

Our data backs this up, revealing that the vast majority of rate increases this month came from these smaller names, with there still being a clear lack of desire to compete among high street names. This looks set to continue for the foreseeable future, but hopefully challengers will keep holding the fort, as these brands still need our cash – and they're willing to offer decent rates in order to get it.

What next?

Check out the best fixed rate bonds to snap up a top deal

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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