Interest rates on savings accounts have long languished at disappointing levels. Recent data shows that these rates have hit new lows, with seven consecutive months of rate cuts far exceeding increases.
Financial data specialist Moneyfacts says that the past seven months has seen only 188 increases in savings rates, and a much more sizeable 883 rate cuts. Of these seven months, the leader when it came to overall rate cuts was February 2016. In February, only 12 rises in savings rates were recorded compared to a total of 253 instances of interest being slashed.
Moneyfacts names several factors as partial causes of the heavy cuts seen in recent months. These include the continuation of a now long-lasting historic low base rate, a lack of certainty about the future of the UK economy, and low levels of competition between savings providers.
The series of interest rate drops over the seven-month period has brought the offerings available to savers to new lows. The very best rate on the market right now for an easy access account is RCI Bank’s 1.45%. Savers who specifically want their savings to be protected under the UK Financial Services Compensation Scheme, as opposed to an overseas analogue of the scheme which is the case with RCI, will not find a better rate than 1.26%.
As tends to be the case, most if not all of the best rates come from smaller “challenger banks.” Those who want to bank with a major high street name will find that most of them are offering rates that are considerably lower still. For example, NatWest offers an easy access account that pays a near-negligible 0.25% interest.
Fixed-rate savings offer better rates than easy access, but have still suffered significantly. For example, locking funds in for a year will give only a small benefit, with the best rate on offer right now being 1.75% from Punjab National Bank. As ever, locking in for longer periods gets better rates – though still at unimpressive rates. For example, a five year bond will give savers access to rates of up to 2.75%.
Only one class of account has recorded an overall increase in available savings rates recently; regular savings accounts. These accounts are designed for regular monthly contributions, typically ranging from around £25 to roughly £300, and are often offered by banks in combination with current accounts. Rates for these, like all other accounts, are much lower now than before the financial crisis, but unlike other savings solutions they have at least been increasing. The average rate in December was 1.64%, but over the past six months this has risen to 1.68%. This is still, however, less than savers would have got from a regular savings account even one year ago, when the average rate was 1.72%.