It has not been a very happy start to 2021 for savers, as new data shows that average saving rates across all savings charts have fallen month-on-month and have hit new lows.
The research, which is due to be published in the Moneyfacts UK Savings Trends Treasury Report, found that average savings rates in all charts have fallen between 1 December 2020 and 1 January 2021 and now stand at the lowest level since our electronic records began in 2007.
As the table below shows, year-on-year has seen a significant fall in saving rates. Although the average easy access savings account rate is the lowest available across all charts, this rate has seen the smallest fall of all average rates, down by 0.41% year-on-year, from 0.59% on the 1 January 2020 to 0.18% on the 1 January 2021. Saying this, 0.18% sits well below inflation, which means that savers depositing their money into an easy access savings account in the long-term will likely see inflation eroding their hard-earned savings. As well as this, as many parts of the UK are once again in lockdown, those with excess disposable incomes are likely to increase their savings, which could in turn see savings rates fall further. As Rachel Springall, finance expert at Moneyfacts.co.uk, explained: “This latest lockdown could mean a further demise in savings rates on offer as providers may struggle to cope with demand and fill their desired subscription targets much too quickly.”
|Savings market analysis – average rates|
|January 2020||December 2020||January 2021|
|Average easy access rate||0.59%||0.19%||0.18%|
|Average easy access ISA rate||0.85%||0.27%||0.25%|
|Average notice rate||1.03%||0.47%||0.40%|
|Average notice ISA rate||1.12%||0.50%||0.44%|
|Average one-year fixed rate bond||1.20%||0.54%||0.49%|
|Average longer-term fixed rate bond*||1.48%||0.77%||0.70%|
|Average one-year fixed rate ISA||1.15%||0.52%||0.47%|
|Average longer-term fixed rate ISA*||1.37%||0.68%||0.62%|
*Longer-term fixed bonds or ISAs are those with terms over 550 days. Average interest rates based on a £5,000 deposit as at the start of the month. Source: Moneyfacts Treasury Reports
It is not just new savers who will be disappointed with the falling saving rates, but those who have money in a fixed rate account or ISA that is maturing soon may struggle to find a new competitive rate. Here we take a look at what options are available to savers.
New savers who have been able to start saving for the first-time during the lockdowns may still prefer the accessibility of an easy access savings account, as Springall revealed: “One of the most popular savings vehicles continues to be easy access accounts, perhaps not a surprise during a period of economic uncertainty due to their flexibility, and over the past year they have seen large deposit volumes despite rates falling to record lows.”
Savers with an easy access savings account need to pay close attention to the rate being offered on the account as some providers are offering rates from as little as 0.01%. In addition to this, these are variable rate accounts, which means that providers can reduce the rate at any time. Savers unhappy with the rate on their easy access savings account should consider switching to a new account to get a more attractive rate. At the moment, the top rate in the easy access savings chart is 0.60%, which is 0.42% higher than the average rate of 0.18%, and 0.59% higher than the lowest rates of 0.01%. The fact that savers can get 0.42% higher than the average easy access savings account by switching to a top-paying account highlights why savers should shop around for the best deal.
Another option available to savers is a notice account. These accounts allow savers to access their money, but require a notice period to be given before the money can be withdrawn. Often, they also allow savers to keep making further additions to the accounts, making them good for new savers looking to build up a savings pot. As with easy access accounts, notice accounts have seen average rates fall year-on-year and now the average notice rate is 0.63% lower than a year ago – falling from 1.03% on the 1 January 2020 to 0.40% on 1 January 2021. “Still, these accounts may suit savers who may need their cash in a few months and are happy to give notice, as with many fixed bonds they run the risk of having their cash locked away and out of reach until their agreed term reaches its end,” Springall added.
Savers who locked into a one year fixed rate bond a year ago will find that the average one year fixed rate has fallen by 0.71% year-on-year, down from 1.20% on 1 January to 0.49% on the 1 January 2021. In fact, with saving rates at an all-time historic low, savers with fixed rate accounts maturing this month will likely struggle to find rates as competitive to ones they have locked into.
For example, five years ago on 1 January 2016, the average five year fixed bond rate* was 2.59%, but this has fallen by 1.79% during the five-year period to stand at just 0.88% on the 1 January 2021. Similarly, on the 1 January 2018, the average three year fixed bond rate* stood at 1.69%, however during the three years since then, it has fallen by 1.00% to stand at 0.69% on the 1 January 2021. Meanwhile, in just two years, the average two year fixed bond rate* has fallen by 1.06%, from 1.63% on 1 January 2019 to 0.57% on 1 January 2021.
Those with a fixed rate bond now maturing could consider locking into a one year bond, with the hope that when the account matures in a year’s time savings rates will have improved and they can lock into a new, better-paying account.
Another option for long-term savers who are happy to take a riskier option than a savings account is to consider investing. Unlike with a savings account, there are no guarantees that a return will be earned on investments and there is also the possibility with some investments that the initial deposit will be lost as well. Some investments, however, are not as risky as others. For example, a structured deposit has the risk of investors not earning any interest on the money deposit, but the initial deposit is guaranteed. A stocks and shares ISA, however, may result in investors not earning any return as well as the possibility of losing their initial deposit and should, therefore, only be considered by those with a higher appetite for risk. Potential investors considering investing in cyrptoassets, such as Bitcoin, should be aware that these are high-risk investments, and the Financial Conduct Authority (FCA) issued a warning last week that those considering these types of investments should be prepared to lose all their money.
For more information about the types of investments available to consumers, visit our investment pages.
*Average interest rates based on a £5,000 deposit.
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