Negative Interest Rates are Becoming a Reality for Savers

By: MoneyFacts

Data from Moneyfacts.co.uk can reveal that the savings market is showing encouraging signs of improvement. The number of rate rises now outweighs the number of reductions for the third month running.

In the month of March, Moneyfacts recorded 163 savings rate rises, with some rates increased by as much as 1.20%. This dwarfs the 65 rate reductions that took place in the same period. As a result, the average five-year fixed rate has now risen to levels not seen since August 2016, reaching 1.81%.

Statistics released today however show that the Consumer Prices Index (CPI) remained at 2.3% during March, so despite the boost to savings rates there are still very few accounts to choose from that match or beat inflation. Today, only 1 out of the 740* savings accounts currently on the market can beat inflation, with this five-year fixed rate bond fortunately without restrictive criteria.

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

“Savers are likely asking themselves whether it’s still considered ‘saving’ if they are in fact losing money because of the inflation bite. As it stands, there is only one standard savings account that can outpace the current level of inflation, which means most accounts on offer today are effectively paying negative interest rates due to the inflation erosion.

“It’s true that providers are not technically charging customers to hold their deposits, but if the interest rate is not outpacing inflation, the spending power of that cash will be eroded over time. As a result, there is likely to be very little incentive for savers to take out a savings account right now. This is particularly true when you consider that the high street banks can pay up to 5% on their current accounts, though these typically have restrictive criteria.

“There is finally some optimism back in the Best Buys, however, with new market-leaders emerging in almost every sector over the past month. These spotlight positions are held by challenger banks and mutuals who are consistently offering better deals than the high street banks. When savers could earn as little as 0.01% on an easy access account, it’s clear to see why a Best Buy rate of 1.15% is exceedingly more attractive.

“What is also beneficial for savers is the Government’s Personal Savings Allowance (PSA), which helps them keep more of their savings interest tax-free, and there are schemes on offer for those looking to buy their first home or save towards retirement. These incentives may well encourage some to be more serious about putting money aside for the future, but there is still a lack of support in terms of the interest rates on offer for those who are not prepared to invest in riskier alternatives.

“Whilst the current state of the market will be disheartening overall, the hard work will be down to savers, who will need to seek better returns and switch regularly to keep on top of the best deals. Savings rates are improving – we have seen 317 rates rises in the first three months of this year – so savers should hold out some hope that something better might be out there for them.”

*Data Note: Please note that these savings product numbers only include deals that are available to all UK residents (this figure does not count each interest payment option for each account). Moneyfacts has chosen not to include products that have limited access, such as locals-only, high net-worth clients or linked products which mean you must have an existing account to obtain headline rates. Moneyfacts has taken the view that as these accounts are not available to your entire readership, their inclusion may be misleading to your readers by directing them to accounts they may not be entitled to. We do, of course, hold all this data should you require it. Our daily Moneyfacts savings rate monitoring started in July 2015 and is a record of live standard savings account changes, which include fixed rate bonds of all terms, all ISAs, notice accounts and no notice accounts.

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