After a challenging 18 months, savers will welcome the latest research showing that average saving rates have continued to rise month-on-month.
The research published in the latest Moneyfacts UK Savings Trends Treasury Report found that average savings rates across all savings accounts have increased month-on-month.
The biggest average rate increase was on longer-term fixed rate bonds, which increased by 0.10% month-on-month, up from 0.77% on 1 July to 0.87% on 1 August. Not only was this a significant increase, but the average rates on longer-term fixed bonds are now higher than they were a year ago when the average rate stood at 0.84%.
One year fixed bonds saw the next biggest average rate rise month-on-month, with the average rate increasing by 0.08%, a rise from 0.52% on 1 July to 0.60% on 1 August.
Although the increase in rates on fixed rate bonds will likely be welcomed by savers, it should be noted that average rates are still significantly lower than they were a few years ago. As a result, savers may find it challenging to find a new savings deal that matches their current fixed rate account. For example, the average rate on a one year fixed rate bond in August 2020 was 0.63%, which is 0.03% higher than this month’s average rate. This, combined with the fact that no savings account can currently match or beat inflation and possibility that inflation will continue to rise in the coming months, means that savers should be cautious about locking their money away for the long-term and should use our comparison chart to search for the best possible rates.
Savers who are reluctant to lock their money into a fixed rate bond, may want to consider an easy access savings account instead. Average rates on easy access savings accounts have also risen month-on-month, however the rise is not as significant as what was seen on fixed rate bonds, rising by just 0.01% - up from 0.17% to 0.18%. This means that in return for being able to access their savings funds, savers will have to settle for a lower rate compared to what they could get on a fixed rate bond. For example, the highest rate in our easy access saving chart currently stands at 0.65%, while the highest rate on a one year fixed rate bond is 1.23% and the top rate on a five year fixed bond is 1.70%.
Despite this, after a challenging 18 months that saw saving rates fall to record lows, the fact that average rates are starting to rise offers savers hope that the market may be slowly becoming more competitive. Rachel Springall, finance expert at Moneyfacts.co.uk, added: “The consecutive rate rises across much of the savings spectrum are green shoots of life to a market that felt barren only a few months ago and there is no telling how long a good deal will last. It is evident that savers have disposable income to put aside and some may be using their pot to supplement their income, so it is hoped providers will inject more competition in the months to come to encourage consumers to take advantage.”
Eligible deposits with UK institutions are protected by the Financial Services Compensation Scheme (FSCS) up to a maximum level of protection of £85,000 per person per institution. All new savings or bank accounts provided to UK customers are now covered by the FSCS.
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Overall, ISA rates showed a similar pattern of rate rises that could be seen with savings accounts, with longer-term and one year fixed ISAs seeing the biggest average rate rises of 0.07% and 0.06% respectively month-on-month, with the average long-term ISA rate standing at 0.73% and the average one year fixed ISA rate standing at 0.45% this month.
The average rate on easy access ISAs increased by just 0.01% month-on-month, up from 0.23% on the 1 July to 0.24% on the 1 August. The only average ISA rate that did not see month-on-month improvement was notice ISAs, which remained at 0.31% both months.
“Savers yet to utilise their ISA allowance or who are perhaps considering their options if they have an ISA set to mature this autumn will note some improvements to the market as there are now more ISA options than there have been since October 2020 when there were 373 deals,” explained Springall. “However, when comparing average rates, fixed ISAs are still paying below their fixed bond counterparts, so savers must consider their options if they have a Personal Savings Allowance and some savers may even decide to withdraw funds from ISAs entirely. Indeed, according to the Bank of England, there was an outflow of £699m from cash ISAs during June, bringing the total outflow so far during 2021 to almost £2.8bn. However, easy access accounts remain a firm favourite amongst savers looking for flexibility with their cash. The inflow into sight deposits during June was almost £10bn, and over £66bn so far this year.”
Find out more and compare the best ISA rates.
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