Gloomy outlook for savers as more cuts expected

Savers hoping that the savings market will bounce back quickly from the Coronavirus pandemic will be disappointed by research that has found the market is facing similar a significant impact to that seen in the aftermath of the 2008 economic crisis and the 2012 funding for lending (FLS) launch.

At times of financial crisis savers tend to opt for easy access accounts as they enable quick access to funds. Our research has found that in the three months since the Coronavirus pandemic began impacting the UK economy, the average rate on an easy access account has halved, from 0.60% available on 11 March 2020 to 0.30% today. This compares to the 2008 financial crash, when average easy access account rates fell by 1.72%, from 3.90% on 15 September 2008 to 2.18% on 15 December 2008. During a three month period in 2012 the average rate on an easy access savings account fell by 0.04%, from 1.14% on 13 July 2012 to 1.10% on 15 October 2012.

“The financial crash in 2008 and the launch of FLS in 2012 had catastrophic effects on the savings market and the latest shake-up caused by the Coronavirus pandemic should not be taken lightly,” said Rachel Springall, finance expert at Moneyfacts.co.uk.

“Savings providers have less reason to improve their range of deals to entice savers right now as they have support available from the Government to fund their future lending.

“Until savings providers desire savers’ cash once more, we are unlikely to see an influx of deals climbing the top rate tables – in fact, we are more likely to see a race to the bottom to cope with demand or see deals with a very short shelf life.”

Clearly savers have faced challenging markets in the past, however this year savers have the added challenge of average easy access rates starting at a lower rate than in previous years. In addition to this, in March the Bank of England cut base rate to its lowest level in history of 0.1% and the Bank has negative interest rates under ‘active review’.

It is not just variable rate savings account that have fallen in the past three months, but the average rates on fixed rate bonds as well. Again, a similar pattern could be seen in 2012 and 2008. Since March this year, the average one year fixed rate bond rate has fallen by 0.23%, from 1.15% on 11 March 2020 to 0.92% today. In the months after FLS was introduced, the average rate on a one year fixed rate bond fell by 0.3%, from 2.73% on 13 July 2012 to 2.43% on 15 October 2012. During the financial crash of 2008, the average rate on a one year fixed rate bond fell by 2.31%, from 6.17% on 15 September 2008 to 3.86% on 15 December 2008.

Not only has the average rate on a one year fixed rate bond fallen significantly since March, but it is also heading for an historic low. “This means savers putting money away in the short-term will need to act quickly to take advantage of the most lucrative rates,” explained Springall.

With saving rates falling, and a number of average rates expecting to reach historic lows, savers should act quickly to secure the best deals, especially if they are looking to lock into a fixed rate account. “Until savings providers desire savers’ cash once more, we are unlikely to see an influx of deals climbing the top rate tables – in fact, we are more likely to see a race to the bottom to cope with demand or see deals with a very short shelf life,” Springall said.

Savers are also advised to regularly check the savings charts as providers have been launching new top rates, but having to reduce rates or withdraw products as they quickly reach their funding targets.