A combination of the Bank of England cutting base rate to a historic low of 0.1% in March and the launch of a new funding for lending scheme in April has resulted in saving rates tumbling over the last six months. While it has been a gloomy year for savers, our research has found that there is some hope that rates are starting to improve.
On the 1 March 2020, the average rate on a five year fixed rate bond was 1.56% and the average rate on a one year fixed rate bond was 1.16%. During the next five months, these rates tumbled and on the 1 August, the average rate on a five year fixed rate bond was just 1.00%, while the average rate on a one year fixed rate bond was 0.64%.
Between August and September there was good news for savers, as on the 1 September, the average five year fixed bond rate had risen to 1.05% and the average one year fixed bond rate had increased to 0.66%. This is an increase of 0.05% and 0.02% respectively in four weeks. Since the start of September, rates have increased again slightly, with the average five year fixed bond rate standing at 1.07% on the 8 September and the average one year fixed bond rate standing at 0.68%.
Although this is not a significant rise and the average five year fixed bond rate is still 0.49% lower than the average rate available in March, while the average one year fixed bond rate is 0.48% lower, these rate rises do offer savers a glimmer of hope that fixed bond rates are starting to improve. In addition to this, providers are becoming more willing to launch new fixed rate bond products.
In March, there were 73 five year fixed rate bonds and 169 one year fixed rate bonds available to savers. By 1 August, this had fallen to 47 five year fixed rate bonds and 149 one year fixed rate bonds. However, by the 1 September, the number of five year fixed rate bonds had increased by seven and the number of one year fixed rate bonds had increased by two compared to the previous month, standing at 54 and 151 respectively. On the 8 September, the number of products available had risen further, with 55 five year fixed rate bonds and 155 one year fixed rate bonds available to savers.
Today, savers looking to open a five year fixed rate bond can get the top rate of 1.50% AER, which is being paid by UBL UK on its 5 Year Fixed Term Deposit. Meanwhile, in the one year fixed rate bond chart, four providers are offering the top rate of 1.20% AER. My Community Bank pays this rate on its 12 Month Fixed Term Savings Account, Paragon Bank pays it on its 1 Year Fixed Rate Savings Account, United Trust Bank pays it on its UTB 1 Year Bond, and Allica Bank pays this rate on its Fixed-Term Personal Savings Account (Issue 8).
Between March and August, the average easy access saving rate had fallen by 0.35%, from 0.57% on 1 March to 0.22% on 1 August. Between August and September, the average rate remained at 0.22%, and it then increased by just 0.01% between 1 September and 8 September to stand at 0.23%. Easy access savings rates are traditionally more closely linked to the Bank of England base rate than fixed rate bonds, which could be the reason for the moderate increase compared to one and five year fixed bonds.
Although savers may be disappointed by the little growth in easy access saving rates, the number of products available has started to rise by a similar amount as one and five year fixed rate bonds. On the 1 March, the number of easy access accounts available stood at 330, which had fallen to 301 on the 1 August. On the 1 September, the number of easy access accounts had increased to 305, before rising further during the month to stand at 307 on 8 September.
Savers looking to get the top easy access saving rate today will have to choose National Savings & Investments’ (NS&I) Income Bonds, which pays 1.16% AER. NS&I also pays the next-best rate of 1.00% AER on its Direct Saver. The third-best easy access savings rate comes from Principality Building Society, which pays 0.90% AER on its Online Limited Access.
It is clear that although saving rates are starting to increase slightly, they still have a long way to go before they return to pre-Coronavirus levels. As the Bank of England base rate remains at 0.1%, there remains the fear of negative interest rates, despite last month the Bank of England Governor, Andrew Bailey, stating that although negative interest rates remained ‘in the tool box’, there were no plans to use them for now. There are many factors that will determine when and how quickly saving rates will recover, but right now the signs are looking as though savings rates have reached the bottom and are starting a slow climb back.
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