Savers will likely be relieved at the Bank of England’s announcement this morning that base rate will hold at 0.1%. At the same time, it was announced that a further £150 billion will be pumped into the economy as the Bank of England continues with quantitative easing (QE) to help boost the economy.
Here we look back at what has happened to saving rates during 2020, how previous Bank of England initiatives have impacted savings rates and how much has been added to the UK economy through QE.
2020 has been a difficult year for savers. Towards the end of March, the Bank of England made two sudden base rate cuts, resulting in base rate falling to a historic low of 0.1%. In addition to this, in April the Bank of England introduced its Term Funding Scheme (TFSME), an initiative that was designed to encourage lending to SMEs.
The combination of a historic low base rate and the TFSME saw saving rates fall rapidly. On the 1st March 2020, the average easy access savings account rate stood at 0.57%, just three months later the rate had fallen by 0.27% to stand at 0.3% on the 1st June. Three months later the average rate had fallen again to stand at 0.22% on the 1st September. This resulted in a fall in average easy access savings rates by 0.35% within a six month period.
Over the same six month period, average one year fixed bond rates had fallen by 0.50%, from 1.16% on the 1st March to 0.66% on the 1st September. Average five year bond rates fell by 0.51% between March and September, from 1.56% on the 1st March to 1.05% on 1 September.
|Average easy access rate||Average one year bond rate||Average five year bond rate|
Since September rates have not recovered, as on the 1st November the average easy access rate stood at 0.22%, the average one year bond at 0.62% and the average five year fixed bond at 1.05%.
Back in April, we looked at the impact of previous Bank of England initiatives on savings rates and found that each time it resulted in a fall in rates.
In July 2012, the Bank of England launched its Funding for Lending Scheme (FLS) which was designed to help the economy recover from the financial crash of 2008/09. After the introduction of this scheme, the average rates on easy access accounts, one year bond and five year fixed bonds all fell. In the six-month period from the 1 June 2012 to 1 December 2012, the average easy access rate fell by 0.14%, from 1.01% to 0.87%. The average one year fixed bond rate fell by 0.5%, from 2.61% to 2.11%. While the average five year fixed bond rate fell by 1.13%, from 3.95% to 2.82%.
|Average easy access rate||Average one-year bond rate||Average five-year bond rate|
Four years later, in August 2016, the Bank of England essentially extended the original FLS and, again, a similar pattern of rates falling happened. Between 1 July 2016 and 1 December 2016, the average easy access rate fell by 0.17%, from 0.56% to 0.39%. Meanwhile, during this same period the average one year fixed bond rate fell by 0.25%, from 1.20% to 0.95%, and the average five year fixed bond rate by 0.38%, from 2.05% to 1.67%.
|Average easy access rate||Average one year fixed bond rate||Average five year fixed bond rate|
Since the financial crash of 2008/09 the Bank of England first introduced QE in November 2009 when its added £200 billion to the UK economy. In July 2012, along with introducing the FLS, the Bank of England increased QE to £375 billion. This was increased again to £435 billion during August 2016, the same time the Bank of England extended FLS. During 2020, the Bank of England has increased QE three times, the first back in March to £645 billion, then in June to £745 billion and again today to £875 billion.
While today’s QE announcement will likely have little impact on savings rates, it highlights how uncertain the economy is at the moment and that a further base rate cut remains a possibility. Already saving rates are at an all time low - with some high street banks offering just 0.01% on easy access savings accounts. But if base rate is cut banks could cut rates further and savers could see negative interest rates.
While the coming months the outlook on savings interest rates does not look positive, there is still the possibility of a challenger bank launching a high chart-topping rate. For example, last month DF Capital entered the notice account chart for the first time with a market-leading rate. Due to high demand for the account, DF Capital withdrew the account after only a few days which highlights the need for savers to act quickly if they want to secure the best savings rates in the current challenging savings market.
Savers looking to get the best savings rates should keep an eye on the savings chart as new high rates are being introduced with little warning and often being withdrawn just days after launch due to high demand. All the best savings rates can be found on our savings comparison charts.
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. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. Moneyfacts.co.uk will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.