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Variable savings rates fell in run-up to base rate

Variable savings rates fell in run-up to base rate

Category: Savings
20/11/2017

Savers may have hoped that the base rate rise would lead to some improvement in the savings market, but not only has there been a lacklustre response from providers so far, figures from the latest Moneyfacts UK Savings Trends Treasury Report reveal that many actually cut their variable rates in the weeks leading up to the base rate announcement, marking the first time since April 2017 that the majority of variable rates have experienced a fall.

As the table below shows, both easy access savings rates have fallen by 0.01% in the last month, with the average non-ISA rate now at 0.39% and the ISA equivalent at 0.62%, both below the rates seen at this point last year. The average notice rate has fallen by an even greater 0.02% to 0.66%, yet it remains the only variable rate to be above November 2016 levels.

The notice ISA rate, meanwhile, edged up by 0.01% to 0.80%, the only variable rate to see an improvement this month. However, it still remains notably below the rate at this time last year, so it's still got some way to go before it hits 2016 levels. It's particularly telling that these rates were calculated as at 1 November, before the base rate announcement a day later, which shows that providers were cutting their rates in anticipation of that announcement.

Average Rates Nov-16 May-17 Oct-17 Nov-17
No notice rate (excluding ISAs) 0.40% 0.37% 0.40% 0.39%
Notice rate (excluding ISAs) 0.58% 0.52% 0.68% 0.66%
No notice ISA rate 0.73% 0.62% 0.63% 0.62%
Notice ISA rate 0.86% 0.74% 0.79% 0.80%

Moneyfacts Treasury Reports

"This month, the growth the Savings Treasury Report has been reporting recently slowed down due to a reduction in the variable rate market, which sees both the average easy access account and easy access ISA rate fall for the first time since April," said Charlotte Nelson, finance expert at Moneyfacts.

"While this fall in rates may simply be a case of poor timing, the fact that the recent base rate rise was almost seen as a foregone conclusion indicates that providers may have been reducing rates in an attempt to minimise any subsequent rate increases.

"Since the base rate rise, things have unfortunately not started to look any better for savers, with providers slow to announce changes and many not passing the full rate rise on. This all boils down yet again to the main banks simply not needing savers' funds, and to make matters worse, challenger banks who put their rates up and down on a regular basis seem not to use base rate as a marker."

This is because many smaller challenger banks base their pricing decisions on their own funding requirements, rather than wholesale markets. This means that if they need savers' deposits, they'll raise rates, but if they don't, they'll cut rates or withdraw products from sale. As a result, there's no guarantee that rates will rise by any measurable amount in the weeks ahead, despite base rate's 0.25% boost.

This means savers could be left in limbo for a little while longer, with many already wondering what to do with their cash. Indeed, our data further shows that the amount people are looking to invest in fixed rate bonds has dropped almost 10% (-9.25%) from last month, while the amount savers are looking to invest in variable rate accounts has increased by almost 5% (4.47%) over the same period.

"This shows not only that savers are reluctant to lock their cash away, but that many have perhaps been stashing their cash in an easily accessible place in preparation for a base rate rise," said Charlotte. "Savers had hoped that such a rise would inspire the banks to start offering a better return on their accounts, but the reality is that they're still going to have to work as hard as ever to get the best possible deals."

What next?

Compare the best savings accounts to get the best return possible from your savings, regardless of what happens to base rate

Disclaimer: 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.

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