2017 Was a Roller Coaster Year For UK Savers

By: MoneyFacts

As we come close to the end of 2017, the latest research from moneyfacts.co.uk shows it has been a roller coaster year for savers. Savings rates fell to record lows for various fixed bonds in January and for variable rates in February, but thankfully as the end of the year draws near, rates in both areas have improvement immensely.

Fixed rates have risen considerably this year, with the average five-year bond hitting 2.03%, its highest level since July 2016 when it was 2.05%. The short-term bonds have also recovered to the extent that today, the average one-year bond stands at 1.17%, its highest point since July 2016 when it was 1.20%.

Variable rates have recovered at a much slower pace. Despite some positive movements at the start of this month, fuelled by the base rate rise in November, the average easy access rate is still below what it was before the Bank of England cut the base rate in August 2016. The average easy access rate in August 2016 was 0.55%, but today it’s 0.47%, which isn’t very reassuring news.

The average return on ISAs (fixed and variable) is also falling short, standing at 1.07% today, down from 1.13% in August 2016.

Nevertheless, for the 11th consecutive month, savings rate rises outweighed cuts, with moneyfacts.co.uk recording 58 individual rate cuts compared to 157 rate rises (including ISAs) in November. However, statistics released today show that the Consumer Price Index has risen to 3.1%. Therefore, savers’ cash is still being eaten away by inflation, as there is not one single standard savings account* that can beat or match 3.1%.

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

“At the start of this year, savers had to endure the worst ever recorded cash rates since records began. So, despite many savers choosing to start up a savings nest egg as a New Year’s resolution, the average returns would have been just awful compared to years gone by.

“There was a huge expectation that variable rates for savers would rubber-band back to what they were before the Bank of England cut the base rate in August 2016, but sadly this doesn’t appear to be the case. Whilst it is true the market has improved in 2017, most of the effort has come from challenger banks, whereas the big high street banks seem to have been very selective on what accounts will benefit from a rise – if any. This is a bit of a backhanded approach as many of the well-known brands were quick to cut rates in 2016.

“It’s disappointing to see ISAs as an area of neglect, particularly as these vehicles used to be seen as a first port of call for savers. Today couldn’t be more different, as the introduction of Government tax-saving initiatives for consumers, specifically the Personal Savings Allowance (PSA), have greatly damaged the returns and enticement of ISAs. Many of the key players in the standard savings market do not offer an ISA equivalent product so the market has not had the luxury of getting a significant boost in returns over the last year.

“Inflation is still taking its toll, as savers’ cash continues to be eroded by its effects, due to interest rates falling short. Even if a saver were to invest in the best five-year fixed bond today, paying 2.51% from Secure Trust Bank, £59 would still be lost in just one year on a £10,000 investment, as the interest fails to beat inflation, assuming the Consumer Price Index sticks at 3.1%.

“Clearly it’s encouraging to see the savings market move in an upward trajectory as we head towards the New Year, but there is still so much more room for improvement. It remains to be the case that challenger banks are working the hardest to entice savers, with high street banks falling by the wayside. With this in mind, savers would be wise to consider more unfamiliar brands to boost their interest if they are looking for a brand new savings account for a brand new year.”

*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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