Best buy savings deals unlikely to rise with base rate

The number of savings accounts available has reached the highest level since the start of the pandemic.

Accounts on offer rose for the sixth consecutive month, with a total of 1,639 options now open to savers.

This is the highest number seen in the past 19 months with now only 7 per cent fewer available deals than there were prior to the first lockdown in March 2020.

And with a potential Bank of England base rate rise looming before the end of the year, savers will be hoping this could help boost rates. 

Rising: Savings choice is rising – but rates are only inching higher

However, one expert believes major banks will ‘pass it on to borrowers but not to savers.’

It is widely expected by economists and investors that a rate rise is on the horizon, with expectations of an increase from 0.1 per cent to 0.25 per cent this year and another nudge up to 0.5 per cent next year.

A rise to 0.25 per cent could see savings rates eventually deals return to where they were last March when the base rate was last cut by the Bank of England – but that is not guaranteed and unlikely to happen overnight. 

Fixed rates have inched higher in recent months, but still lag behind. For example, the average one-year rate is 0.76 per cent versus 1.15 per cent in March 2020 – some 0.39 percentage points away.

The average two-year rate is 0.4 percentage points short of March 2020 and easy-access 0.38 percentage points. 

James Blower, founder of the Savings Guru and industry expert, said: ‘I think it is inevitable we will see a base rate rise in 2022, but perhaps later in the year than is being forecast.

‘It will do very little for savers, with the major banks passing it on to borrowers but not to savers.’

Major banks haven’t competed for savers for some years, with many now paying as little as 0.01 per cent on easy-access accounts.

The advice for savers from Blower is not to wait for rate rises, but to move quickly to secure a current best buy, as he believes rates are more likely to fall than rise in the short term.

‘What we are seeing is providers behind Gatehouse, offering one and two year fixes are cutting rates so we are likely to see a little fall back on these fixed rates when Gatehouse inevitably cut their rates.    

‘My advice to savers is that there are some good easy access deals currently from Coventry and Family Building Society (both 0.65 per cent) so take those if you can’t tie up your money. 

‘Family Building Society’s 90 Day Notice paying 1.06 per cent is great for those who don’t need quick access as well as Gatehouse’s 1.51 per cent one year deal – but I wouldn’t lock up beyond that at present.’ 

Savings market – average rates
Product type Avg rate March 2020 Avg rate October 21
Average easy-access rate 0.56% 0.18% 
Average one-year fixed deal  1.15%  0.76% 
Average two-year fixed deal  1.23%  0.83% 
Source: Moneyfacts     

Challengers and new entrants lead the way… 

Rachel Springall, finance expert at Moneyfacts, said: ‘The growth in product choice for savers has reached a milestone, as the market’s steady recovery has led to volumes reaching the highest point not seen since before the UK lockdown and Bank of England base rate cuts in March 2020.

‘The past six consecutive months of product choice growth has been fuelled mostly by a rise in fixed bond and notice account options, and rates have also improved in these areas.’

She adds: ‘Savings providers have been attentive with pricing fixed bonds, and the average longer-term bond has now surpassed one per cent for the first time since June 2020.

‘A notable uplift was seen in the one-year fixed bond arena, where the average rate rose by 0.09 per cent month-on-month, the biggest rise since April 2011. 

While the number of available deals is not far off pre-pandemic levels and with rates appear to be rising, the returns average savers are achieving is way down from where they were at the beginning of last year.

The average easy-access rate rose to 0.18 per cent this month, while the average one year and two-year fixed rate deal now pays 0.76 and 0.83 per cent respectively.

Average easy-access deals were paying 0.56 per cent in March 2020 while the average one and two-year fixes were paying 1.15 and 1.23 per cent respectively.

This means the average saver depositing £10,000 in an easy-access today could expect a return of just £18 after a year. 

For the more proactive savers on the hunt for the higher rates, the best deals on offer are closing in on pre-pandemic levels.

While many savers have their cash sitting in easy access accounts paying 0.01 per cent, the market leading easy access deals pay 0.65 per cent, whilst the leading one year fixed rate deal is currently paying 1.51 per cent.

James Blower adds: ‘The Moneyfacts statistics highlight the disparity in the market. 

‘Although average rates are way off, the best buy rates are not that far off pre pandemic levels, and are higher than the NS&I rate cut announcement in 20 September which triggered the big slump.

‘What this highlights is that, while the newer entrants and challengers, who have dominated best buys, continue to offer good rates, the larger banks have barely moved pricing in this time.’

Savings market – average rates
Product type October 2019 October 2020  October 2021 
Average Easy access rate 0.64% 0.23%  0.18% 
Average notice rate  1.06%  0.35%  0.25% 
Average one-year fixed rate  1.29%  0.68%  0.76% 
Average longer-term fixed rate 1.59%  0.93%  1.03% 
Average one-year fixed rate Isa  1.23%  0.62%  0.53% 
Average longer-term fixed rate Isa  1.41%  0.85%  0.83% 
Souce: Moneyfacts       

For those who have their savings stashed in cash Isas, the average returns on their cash is even bleaker.

The number of Isa products opened in the last year jumped 79 per cent to a five-year-high, according to analysis of FCA data by the financial advisor Salisbury House Wealth.

Despite the record low interest rates, 2020 saw 388,363 Isa products opened, compared to 216,933 in 2019.

Savers will receive on average 0.23 per cent less from a one-year fixed Isa than a fixed bond equivalent, according to Moneyfacts, which is the widest margin since September 2012. 

How to find the best savings rates

Savings rates have been in the doldrums for a while and exacerbated by the pandemic.

But there are ways to ensure your cash is in the best of the bunch at all times. 

Over the past few years a number of savings platforms have launched, offering savers the option to switch as and when better deals become available. 

They each work slightly differently and include their own exclusives. To check out what’s on offer take a look yourself:

> Hargreaves Lansdown Active Savings

> Raisin 

> Flagstone  

Or you can view This is Money’s comprehensive best buy savings tables here, independently curated by savings guru Sylvia Morris:

> Compare best savings rates now 

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