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Last month saw 40% of savings providers cut or withdraw their fixed rate bonds, data from Moneyfacts UK Savings Trends Treasury Report has found.
The findings from the report, which is not yet published, will be unpleasant reading for savers, especially for long-term savers who have been hit particularly hard, with long-term rates seeing the biggest month-on-month drop since November 2016. In fact, during July, a third (33%) of providers adjusted their longer-term fixed bond range, but short-term savers were also hit, with a fifth (20%) of providers amending their one-year offerings.
Savings market analysis
|April 2018||August 2018||July 2019||August 2019|
|Average one-year fixed rate bond||1.22%||1.32%||1.41%||1.37%|
|Average longer-term fixed rate bond*||1.69%||1.82%||1.78%||1.72%|
*Longer-term fixed bonds are those with terms over 550 days. Source: Moneyfacts Treasury Reports
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “The cuts to fixed rate bonds are gaining momentum, so much so that returns are dropping to their lowest levels seen in at least twelve months. This will be disappointing news to the day-to-day saver, as providers are reacting swiftly to a shift in their market position.
“As our analysis shows, almost half of providers in the savings market withdrew or cut their fixed rate bonds throughout July, a large portion of which were from challenger banks and Islamic banks. The challenger brands still dominate the fixed rate bond market regardless, however if savers lock in today versus a month ago, they may well have missed the boat for a more generous return.
“Providers appear to be altering their market position not necessarily to deter savers, but to adjust their margins and close the gap between their competition during a period of economic uncertainty. Indeed, the re-pricing comes at a time when the savings market may be preparing for a drop in the Bank of England base rate, with the two-year SWAP rate - a key indicator - falling to its lowest point (0.67%) since September 2017 (0.54%).
“Savers would be wise to prepare themselves for possible further falls in fixed rates as market influences take their toll, so if they are looking to lock away their cash, speed is of the essence. The same speed is crucial for savings providers to have an opportunity to adjust their rates and retain a decent market position to help gain deposits to fund their future lending - rather than pulling a deal entirely due to demand.”
While the rates on fixed rate bonds are falling, these savings accounts still offer the highest savings rates overall. For example, the best overall rate being offered in the fixed rate bond chart is an expected profit rate of 2.80% on a seven-year bond from Bank of London and The Middle East. This compares with the highest overall rate being offered in the notice account chart of 1.85% from PCF Bank on a 180-day notice account, while the highest rate in the easy access chart is just 1.50%, being offered by Marcus by Goldman Sachs® and Virgin Money. Clearly, although the drop in fixed rate bond rates will have an impact on savings’ returns, savers wanting to get the best rates on their money should still consider the fixed rate bonds chart.
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