The extent of the impact of the Coronavirus pandemic on the savings market is becoming clear, as the latest figures show that savings rates have seen their biggest fall in the first six months of the year in over a decade.
Research carried out by Moneyfacts.co.uk has found that rates across all savings charts have seen their biggest fall between January and June since 2009, when the aftermath of the 2008/09 financial crash began to be felt.
Today’s falling rates have been compounded by years of low savings rates, meaning that the average rates across all savings charts are now lower than those available in June 2009, despite that year seeing a bigger fall in rates. For example, the average easy access rate fell from 1.55% in January 2009 to 0.70% in June 2009, but this year has seen it fall from 0.59% to just 0.30% available at the start of June.
|Savings market analysis|
|Average rates||January 2009||June 2009||January 2020||June 2020||Today|
|Easy access ISA||2.56%||1.30%||0.85%||0.45%||0.37%|
|One-year fixed bond||3.49%||2.97%||1.20%||0.86%||0.71%|
|Longer-term fixed bond||3.38%||3.36%||1.48%||1.05%||0.92%|
|One-year fixed ISA||3.43%||2.75%||1.15%||0.75%||0.63%|
|Longer-term fixed ISA||3.43%||3.13%||1.37%||0.93%||0.81%|
Unfortunately for savers, at the moment it does not look as though savings rates will start to improve in the near future and, as such, savers are being urged to switch accounts to ensure that they can secure the best rates while they are still available. Rachel Springall, finance expert at Moneyfacts.co.uk, explained: “These rate cuts should be more than enough reason to give savers a push to switch their deal if they are getting a poor return on their hard-earned cash. Indeed, on an easy access account, savers could be earning as little as 0.01%, such as with NatWest, but the best rate on the market pays 1.15% from National Savings and Investments (NS&I) – on a £20,000 deposit, that is a difference in interest over 12 months of £228.”
The average rates on longer-term fixed ISAs saw the biggest fall between January and June, with the rate falling by 0.44%, from 1.37% to 0.93%. Today the rate has fallen further standing at just 0.81%. Longer-term fixed bonds also saw a significant fall since January, with the average rate falling by 0.43% between January and June, from 1.48% to 1.05% and standing at 0.92% today.
Savers looking to lock into a longer-term ISA can get 0.44% above the average rate by choosing the top-paying ISAs available in the fixed ISA chart. For example, Shawbrook Bank currently pays 1.25% gross on anniversary on its 7 Year Fixed Rate ISA Bond Issue 3. United Trust Bank is also paying 1.25% gross on anniversary at the moment on its ISA 7 Year Bond. This would mean that a saver locking £10,000 into a seven year ISA at the average longer-term ISA rate of 0.81% would earn £580.97 in interest over the seven-year period, but those who choose the top-paying rate of 1.25% would earn £908.50 in interest over the same period.
For those looking at a longer-term fixed rate bond, the top-paying bond in the chart currently pays 0.78% above the average longer-term fixed bond average rate. Bank of London and The Middle East currently offers the best rate in this chart, paying an expected profit rate of 1.70% gross on anniversary on its Premier Deposit Account. This would mean that savers locking £10,000 into a seven year bond at the average longer-term bond rate of 0.92% would earn £662.05 in interest at the end of the seven years, while those who lock into the top-paying fixed rate bond with an expected profit rate of 1.70% would earn £1,252.44.
“It is imperative that savers act quickly to acquire the top rates on the market regardless of which type of savings account they choose, as there seems no end to the downward trend,” said Springall. “Due to the uncertainties that the Coronavirus pandemic has instilled, it is more important than ever before for consumers to build up an emergency fund that they can dip in to should they run into any financial difficulties in the months to come.”
To find out how much interest can be earned on a lump sum deposit into a savings account, visit our lump sum savings calculator.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.