Cold Shoulder for UK Savers as Market is Hit by Interest Rate Cuts

By: MoneyFacts

Data from Moneyfacts.co.uk can reveal that rate reductions in the savings market have now outweighed rate rises for six consecutive months.

In March, Moneyfacts recorded just 18 savings rate rises. Disappointingly, rate reductions over the same period completely overshadowed this figure, with the number of rate decreases over the month hitting 123, which means that 87% of rate changes were cuts.

While this is certainly bleak news, at least savers’ precious funds won’t be greatly affected by inflation: inflation statistics released today show that the Consumer Prices Index (CPI) increased from 0.3% to 0.5% during March, which means they have little to worry about in terms of savings erosion. Unsurprisingly, the vast majority of the 811 savings accounts currently on the market (630) can beat or match inflation, and of these 580* (92 no notice, 58 notice, 232 fixed rate bonds and 198 cash ISAs) are without restrictive criteria*.

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:         

“Savers are very likely to be frustrated by the current state of the savings market, but the new Personal Savings Allowance will at least mean that an estimated 92% of savers will be free from tax deductions. Despite this good news, savings rates in general are still falling, with the average one-year fixed rate bond dropping to a record low of 1.25%, down from 1.42% a year ago.

“Providers are constantly reducing rates, which has created a race to the bottom of the best buy tables. One of the most notable providers to announce that it would cut rates was NS&I, which stated that it would slash its rates in June after steadily moving up the best buy tables thanks to other providers dropping their rates. It’s therefore clear to see why savers must be quick to grab the best deals, particularly if they have their heart set on a smaller mutual, which can quickly become oversubscribed.

“This time of year usually sees savers turn to ISAs to act as a safe haven for their cash, but even these accounts have not been left unscathed by rate decreases, with 40 cuts taking place over the last month compared with just two rate rises. However, these vehicles are still a great addition to any saver’s portfolio due to their flexible nature, particularly if savers split their cash between easy access and fixed rate deals.

“With 81 easy access accounts paying 0.50% or less, which represent 48% of the easy access market, the need for savers to review the interest they earn has never been so important. Savers could, in fact, earn over twice this amount if they opted for the market-leading deal offered by RCI Bank UK, which currently pays 1.45% yearly.

“If savers want an alternative to a savings account but still want easy access to their money, they could investigate interest-paying current accounts, some of which pay up to 5%. The Current Account Switch Service makes it easier for people to change their current account, so now’s a good a time as any for consumers to decide to switch to a more cost-effective deal.

“Until the savings market starts to lift and stops giving savers the cold shoulder, consumers will have to make do with what’s left. Those looking for a reasonable return on their money will need to work hard to keep on top of the best deals and snap up the top rates that surface.

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