As it’s the start of a new year, we thought we’d take a look at what has occurred over the last 12 months in the savings market.
I’m afraid that it’s not been a great year. Political uncertainly has seen the markets assuming a Bank of England base rate cut to be the most likely next move, which has had a dampening effect on the competition that we had been enjoying.
Amazingly, even though the base rate has remained level at 0.75% since August 2018, there have been over 750 rate cuts to existing savings accounts in 2019 alone. Compare this to just 137 rate increases! One of the most recent cuts was to the already abysmal HSBC Flexible Saver Account. This was paying just 0.15% until 18 December 2019, at which point it was cut to 0.10%.
Some providers clearly feel that it’s acceptable to cut rates at any stage and you can bet that if the next move from the Bank of England is a base rate cut, most - if not all - accounts are likely to be reduced, even if they have already been cut in the meantime.
The amount held in easy access accounts is now over £767bn, not including the money held in easy access cash ISAs - and there is possibly even more languishing in personal current accounts.
But, even with interest rates as low as they are, those who have left their money in the wrong account could have missed out on valuable interest over the past year, especially if they had used their cash ISA allowance.
Those who held the worst cash ISA accounts of the year could have earned as little as 20p in interest for every £100 saved – for example if you had deposited £20,000 into the Santander Easy ISA on 1 January 2019, you would have earned a grand total of £40 over the year – as that account has been paying just 0.20% AER. If, on the other hand, you had chosen the best easy access cash ISA at the time, the Virgin Money Double Take E-ISA Issue 5, you would have a far healthier tax-free amount of £290 in interest.
Going back to the cuts that have been happening, it’s not just existing savers who are feeling the pain. As a whole, best buy savings rates have been dropping too, with fixed rate bonds and ISAs suffering the most.
A year ago, you could have opened a 12 month fixed term bond with sharia provider Gatehouse Bank paying 2.10% AER – however, when looking to reinvest now on maturity, the best rate currently available is just 1.80% AER – also from a sharia provider, BLME.
Lesser-used notice accounts have been a bit more resilient. A year ago, you could have opened a 120 day notice account with Gatehouse Bank paying 1.87% AER - today the best notice account is a 90 day notice account with BLME paying 1.71% AER – almost as much as a 12 month fixed term account.
And best buy easy access accounts have been the least affected – with the best account from Shawbrook Bank paying 1.41% AER today, compared to 1.50% AER a year ago from Marcus. Although the rate on the Marcus account has recently been cut to 1.35% for new customers - as there is no longer a bonus on offer - those who did open the account when it had a bonus will continue to enjoy that, as well as the underlying rate, for the remainder of the bonus period.
The most important thing to remember is that you can still make a real difference to the interest in your pocket by choosing the best accounts. For example, you could earn over 14 times more in interest by choosing the best easy access account available rather than HSBC’s Flexible Saver. As mentioned above, Shawbrook Bank is paying 1.41% AER on its Easy Access Account Issue 17. So, on a balance of £85,000 you could either earn £85 gross over the next 12 months with HSBC or £1,198.50 with Shawbrook, assuming these rates remain the same.
Even if you would prefer not to open your account online, there are still options. The Britannia Select Access Issue 11 can be opened in any Co-op Bank branch or by telephone as well as online – and is paying 1.30% AER. But, as with many of the top easy access accounts these days, there are restrictions on the number of penalty-free withdrawals that can be made – in this case just four each year. Any more and the rate will drop to 0.30% for the remainder of that year.
So, here’s to 2020. At the moment things aren’t looking too bright but there is a lot happening and things could change – so we’ll keep you updated with the very best savings accounts that you can find.
To keep up to date with the latest rate changes, remember to sign up for our Rate Alerts.