Rather than a Rates Rundown, this week we have put together a Rates Roundup – a look back at another extraordinary year for savers. Even though I look at these figures regularly – providing statistics for the financial press, each time I do, it amazes me about just how much more you could be earning – and with inflation now falling below base rate, there are scores of accounts paying interest rates that are keeping up with the cost of living.
So let’s take a look at how the savings market has performed over the past year and what is still available.
We started 2023 feeling pretty cock-a-hoop, as the top easy access rates had increased over the previous year from 0.61% AER to 2.86%, a more than fourfold increase. But there was a lot more to come. At the time of writing, the top rate is 5.22% with Metro Bank and in fact there are almost 30 accounts that are paying more than 5% - a rate than is by far the highest in Savings Champion’s history. So, although the top rates have only doubled in the last year, on a deposit of £50,000 the increase of interest is £1,180, from £1,430 a year to £2,610, a year – I know I could do with an extra few hundred pounds or more which is the reality if you have kept your cash in a top paying account.
Of course, depending on who you have your cash with, will determine how smug you are feeling. If you had your £50,000 with Barclays Everyday Saver, the interest you are earning would have increased from £250 gross/AER with a rate of 0.50%, to a slightly better 1.26% AER (the blended rate) so providing £630 in interest a year.
But if you had put your £50,000 in the Zopa Smart Saver, which was the top paying account at the start of the year, the rate on this account is currently 4.54% AER – so not market leading but definitely much more competitive than any of the high street banks.
However, there is a clear benefit to monitoring your variable rate accounts closely and switching regularly if you want to keep your accessible cash earning as much as possible.
Anyone who regularly reads the Rates Rundown will not be surprised to hear that the top rates on offer seem to have peaked a few weeks ago. But those who opened a bond a year ago, will still be looking at earning more over the next year if they roll over, than they have over the last year. In January 2023 top rates on a 1 year bond were 4.35%, so a deposit of £50,000 would have earned £2,125 before tax deducted, over the term of the bond – but if rolling over today for another year you could open a 1-year bond paying as much as 5.66% - so you would earn £2,830 before tax over the next 12 months – an improvement of £705.
There was a point, from early July until mid-October this year, that ALL of the top five 1-year bonds were paying 6% or more. But the last 6% bond left our table at the beginning of November, as the better-than-expected inflation news saw the Bank of England pause the base rate increases – leaving it at 5.25% since August 2023.
2-year bonds
Back in July to October this year all of the top five bonds were also paying 6% or more, peaking at 6.20% for a couple of days with a bond from Vanquis. But, as with the 1-year bonds things have dropped and the top rate, as we head into the weekend, is 5.56% AER. However, this is still a significant improvement from the start of 2023, when the top rate was just 4.53%.
Longer term bonds
It’s a similar picture with the longer-term bonds, although as has been the pattern throughout the year, rates as a whole are lower the longer the term.
The top 3-year bond was paying 4.55% AER as we started the year and the top 5-year bond was 4.60%. But while the top 3-year rates did get as high as 6.10%, the top 5-year bonds only just hit 6% for the briefest of periods.
With inflation falling quite heavily over the last few months, fixed term bonds rates have fallen too. Only two of the top five 3-year bonds are paying 5% or more and none of the top five 5-year bonds are paying 5%. But, while longer term bond rates are lower than short term, it could still pay to lock some of your cash up for the longer term – hedging against possible interest cuts over the next few years.
The good news for savers is that it’s looking likely that whilst we might now be at the top of the interest rate cycle, the Bank of England has hinted heavily that the markets are wrong to anticipate that base rate will start to fall again in the first half of 2024 – instead it’s expected that rates will stay higher for longer, hopefully giving savers some stability for a while.
There has been a great deal of activity in the fixed term cash ISA market recently but unfortunately not it a good way!
That said, the rates available today are still much better than they were at the beginning of the year.
The top 1-year ISA in January 2023 was 4% - today all of the top five are still paying 5% or more. Rates had risen to as much as 5.86% by October, but whilst the average of the top five was 5.78% at that time, rates have started to fall quite rapidly recently and as we head into the weekend, the top rate available is 5.41% with Metro Bank – and the average of the top five is 5.10%.
As with fixed term bonds, the activity has been similar and although the top 2-year bond available in January was paying a little more than the 1-year rate, at 4.15% the top rate as we head into the weekend is just 5.01% with Metro Bank.
You could have earned a little more over 3-years back in January as the top rate was 4.25% - but interesting the top rate is now just 5% with the Hinckley & Rugby Building Society - so lower than both the 1-year and 2-year top rates.
Over five years it’s even more interesting. All of the top five are paying 4.81% or less and there has been a plethora of accounts being withdrawn, replaced by lower paying accounts. So right now the average of the top five is just 4.48% - down from 4.73% at the beginning of December but up from 4.13% at the beginning of the year.
Although the recent news isn’t great, as many more savers are paying tax on their interest once again, cash ISAs are still vital as the tax free rate of the ISA can still be considerably more than the interest earned after tax has been deducted on the taxable non ISA bond equivalents. So, for many the ISA allowance is not to be disregarded.
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