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It's now been two full months since the base rate rose from 0.25% to 0.50%, but unfortunately, it hasn't had much of a positive impact on the savings market. Not only have short-term bond rates actually fallen, but our latest data shows that even variable savings rates have yet to experience the full benefit, and have still failed to return to levels recorded prior to the base rate cut in August 2016.
The figures, taken from the latest Moneyfacts UK Savings Trends Treasury Report, show that both the average easy access and notice account rates have risen by 0.09% since November to stand at 0.48% and 0.75% respectively. Meanwhile, the average no notice cash ISA rate is up by 0.11% (to 0.73%) and the notice equivalent has risen by 0.13% to 0.93%. All saw increases on a monthly basis as well, marking the second consecutive month that all variable rates have risen.
So far, so good. Right? Well, while that initially sounds positive, those combined increases are all well below the actual base rate rise of 0.25%, showing that providers have been slow to pass on the increase. Indeed, even among those providers who have passed on a rate rise, most have been selective in which products receive a boost. This means that not all savings accounts have benefited from an increase, resulting in a limited effect on the overall average.
The result of such minimal movement is that all variable rates remain some way below those seen before the base rate cut, showing that the market has yet to fully recover from its impact.
As the table below shows, rates in the ISA sector have been particularly hard hit and continue to show the greatest losses, with the average easy access ISA rate still 0.22% below that seen in August 2016, and the notice equivalent remaining 0.11% below pre-cut levels.
Rates in the non-ISA sector are closer to equalling those recorded prior to the rate cut, but with the easy access rate still 0.06% below that level and the notice rate 0.04% lower, it shows just how little providers need our cash.
|Easy access ISA||0.95%||0.77%||0.62%||0.73%|
The table also highlights another important point: that providers are far quicker to pass on a rate cut than they are a rise. As you can see, by October – again, two months after the rate change – the average easy access rate had fallen by 0.11% and the notice rate was down by 0.17%, while in the cash ISA sector the reductions stood at 0.18% and 0.12% respectively. This time, only the notice ISA rate has risen by a greater extent following the rate change, as providers simply aren't motivated to pass on any improvement.
Thanks to various Government funding initiatives, the big banks simply don't need our cash to fund their lending activities, as they've already got access to a supply of cheap money. As such, it's only likely to be when banks have exhausted those funds that they'll need to compete for our cash again, at which point it's hoped that savings rates will rise a bit further.
But there is one exception to this: challenger banks. Most of these smaller brands aren't participating in any Government schemes and so still need to compete for our cash, hence the reason that they take pride of place in our Best Buy charts. They typically pay far better rates than the averages listed above and still come with the same financial protection, so it could be time to think outside the box in your hunt for the best rates.
Find the best savings rates using our Best Buys, or use our savings search tool to narrow things down.
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