UK Savings Interest Rate Rises Brighten 2018, But Inflation Bites

By: MoneyFacts

Savers have had a more encouraging start to 2018, with rate rises galore and growing expectations of consecutive base rate rises throughout the year. Not only this, but with the Term Funding Scheme (TFS) coming to a close this month, savers will be expecting the market to recover, rather than worsen.

Interest rates across the savings market have risen for 13 consecutive months now, with the number of rises continuing to outweigh cuts, as moneyfacts.co.uk recorded 56 individual rate cuts compared to an astounding 126 rate rises in January. This includes 46 rises and 11 cuts for ISAs alone.

However, statistics released today show that the Consumer Price Index has remained at 3.0%. Therefore, savers’ cash continues to be eaten away by inflation, as there is not one single standard savings account** that can beat or even match 3.0%.

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

“It’s great to see savings rates improving on the whole for yet another month, largely fuelled by competition amongst the challenger banks. There is also a great expectation for the market to overall improve throughout 2018, thanks to the recent closure of the FLS and impending closure of the TFS. This may seem too good to be true though, as lenders still have four years from their transaction date to lend out the funds, which will interrupt the demand for savers’ deposits.

“Despite this, an opportunity for interest rates to rise may be on the cards for 2018. Last week, the economic outlook of the Bank of England (BoE) seemed uncertain, due to the progress in leaving the EU. While inflation remains well above its target of 2%, the BoE monetary policy committee unanimously voted to keep the base rate at 0.50%, but suggested that rates could rise earlier than previously expected. Some economists are even predicting a rise in May, whereas others suggest that it may happen in August. Regardless, savers will be hoping that any change will have a positive impact on the market. However, as we have seen before, there is no guarantee that savings rates will rise in line with the base rate.

“In fact, there are still quite a few variable savings accounts paying less than 0.50%, with around 50% of the easy access market failing to match this level. Some of these come from the largest high-street brands, which shows how important it is for savers to shop around and scrutinise the more familiar brands. Challenger banks have proven that they are worthy of savers’ attention, and because they are also covered by either a UK or EU compensation scheme, they are just as safe as the well-known brands. With this is mind, savers could well be sacrificing a much higher rate of interest because of their reluctance to move away from a popular brand.”

“Some rate rises have been far from substantial, as a rise of as small as 0.05% seems to have caused challenger banks to leapfrog other competition in the easy access Best Buys. It is positive to see that these banks are determined to entice new savers, and there is hope that this will continue throughout 2018.”

**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 that require you to have an existing account to obtain headline rates. Moneyfacts has taken the view that as these accounts will not be available to your entire readership and 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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