Slow recovery in savings market as rates rise from record lows

Moneyfacts UK Savings Trends Treasury Report data, not yet published, reveals that over the past two months, all average savings rates have risen and are no longer at the record low levels seen in August 2020. Providers competed on rate and, in particular, launched new deals during September, which boosted many areas of the savings market. However, some deals were quickly adjusted, and we have subsequently seen a fall in the average shelf life of a fixed rate bond to a new low. 

  • Slight recovery on average savings rates across the spectrum over the past two months, pulling away from the record lows seen in August 2020. 
  • Average fixed rates for one-year and longer-term fixed bonds as well as ISAs all rose in September, with greatest rises seen on longer-term options.
  • The average shelf life of a fixed rate bond fell to 28 days from 36 last month, the lowest number of days since March 2009.
  • Product choice has lifted once more, where there are now 1,531 savings deals (including ISAs) on the market, the highest level since May and 129 more than those seen in August. Despite this, there are 322 fewer deals available than a year ago.
Savings market analysis – average rates
Average easy access rate0.64%0.22%0.22%0.23%
Average easy access ISA rate0.91%0.32%0.32%0.35%
Average notice rate1.06%0.48%0.53%0.53%
Average notice ISA rate1.16%0.52%0.54%0.54%
Average one-year fixed rate bond1.29%0.63%0.65%0.68%
Average longer-term fixed rate bond*1.59%0.84%0.86%0.93%
Average one-year fixed rate ISA1.23%0.56%0.58%0.62%
Average longer-term fixed rate ISA*1.41%0.75%0.78%0.85%
*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
Savings market analysis – product count
Number of live savings account options (excluding ISAs)1,4481,0831,1331,158
Number of live ISA options405319352373
Source: Moneyfacts Treasury Reports

Rachel Springall, Finance Expert at Moneyfacts, said:

“Many consumers have amassed a substantial portion of disposable income over the UK lockdown and with economic uncertainty prevalent, it appears this cash is flowing into accounts that can be easily accessible, and providers are moving fast to cope with demand. As was predicted by the Centre for Economics and Business Research (Cebr) around six months ago, there has been a sharp rise in the proportion of household disposable income, which has hit 28.1% according to the Office of National Statistics (ONS).

“Savings providers acted positively with rate rises and product launches during September, but some of the lucrative offers were short-lived – a trend seen across the sector. The boosts have resulted in all average savings rates either rising or maintaining their levels seen one month prior, a refreshing change from the persistent falls that pushed rates to the record lows seen during August. However, as the market remains very fluid, its rejuvenation may well be a slow and steady process and savings providers must adjust to demand within the space of a week or even days in some cases. As shown with the average shelf life for a fixed rate bond, vigorous repricing has resulted in a fall to 28 days, the lowest number recorded since March 2009.

“Product choice has also increased by more than 100 deals since August, but overall there are still over 300 options less than a year ago so, with more room for improvement, it will be interesting to see whether growth continues and what types of offers providers focus on in the months to come. Consumers are pooling more cash into easy access accounts than fixed, with the latest Bank of England statistics showing that the inflow into interest-bearing sight deposits hit £2.4bn during August.

“The ISA market has improved month-on-month and the gradual rises should be celebrated, but average returns remain much lower than those seen a year ago. Indeed, the average one-year fixed ISA rate has halved since October 2019, meaning savers coming off a deal today who wish to fix for the next 12 months would see an average interest loss of £122 if they maxed out their ISA allowance of £20,000.

“It seems the volatile savings market may well continue in the months to come, especially if savers decide to withdraw their money from National Savings and Investments when rates drop in November. Providers will have to review their savings range carefully and remain resilient in these uncertain times, and savers will need to act quickly to be in with a chance to acquire the best deals.”