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April Savings Round Up

Budget Round Up

In last month’s column, I promised to update you on the Budget and what it would bring for savers. How much the world has changed in four weeks with many of you likely to be reading this in lockdown.

I predicted there would be very little for savers in Rishi Sunak’s first budget but hoped he may surprise with something out of the blue. From a saver’s perspective, it was possibly the most underwhelming budget in recent memory. In fact, other than a (pretty significant in fairness) increase in the Junior ISA allowance from £4,368 to £9,000, buried in section 1.171 on page 51 of the Budget 2020, there was nothing.

Not surprisingly, around half the focus was on the existing economy and the other half on measures to fight Covid-19. The more significant news for savers actually came earlier in the morning from the Bank of England, who announced a package of measures to support the economy in the wake of Covid-19. These were three-fold:

1) Reducing the Bank of England Base Rate from 0.75% to 0.25%

2) Launching a new Term Funding Scheme (TFS)

3) Releasing the UK Countercyclical Capital Buffer

I don’t see any of these as good news for savers. Traditionally, rates paid to savers have broadly moved in line with Base Rate, but this linkage is long gone. On paper therefore, a drop in base rate isn’t as negative as it would have been historically. However, the cut certainly won’t help savers as it gives the big banks even less incentive to pay attractive rates.

The new TFS and relaxing of capital buffers are designed to provide more cheap money to the banks to encourage them to lend more to small and medium sized enterprises in these difficult times as we fight the coronavirus. In short, this means that’s less they need to attract from savers and therefore will mean that they don’t need to compete as hard to attract money from savers.

In short, very little good news for savers.

 

What does the future hold?

It’s hard to be optimistic about the savings market at the moment. However, there are glimmers of hope still. Firstly, I’m in the school of thought that rates have fallen so low since the financial crisis of 2008, that there’s limited room to drop much further. I still find it hard to believe that savers could get 7% on 1 Year fixed in 2008!

Secondly, there’s been some signs that the smaller banks are still lending and keen to attract savers and we’ve seen huge activity in the 1 Year market recently with a breakout above the 1.55% level that best buys had fallen to, after Ikano withdrew their 1.56% rate. They were quickly replaced by Smartsave (1.56%) and OakNorth (1.57%) who have both cut rates since. However, Secure Trust Bank (1.58%) and BLME (1.60%) have replaced them and Hampshire Trust Bank and United Trust Bank have joined Investec at 1.55%, providing some support.

The market is going to be volatile at the moment and I suspect many savers will be reluctant to tie their money up beyond 1 Year in the present climate. Given that there is only a 0.40% gap between the best 1 Year rates and the top 5 Year one, I think this is sensible. However, rates will come and go quickly as the smaller banks do not have large enough balance sheets to cope with the huge inflows that being top of the 1 Year market can generate. Therefore, I’d suggest moving quickly to secure a good deal if you see one.

Thirdly, there’s still a raft of new banks due to enter the market. Over 20 new bank licences have been issued, and approximately 50 new savings providers in total have joined the market in the past decade. While new licences have been thin on the ground recently, there’s an influx coming. Allica, Oxbury, revverbank, Vive and Zopa are all licensed but yet to launch to the market. Castle Trust have just been awarded their licence in March and B-north, Distribution Finance Capital, Lintel and Recognise are known to have submitted their licence applications and expecting to gain authorisation in Q2 2020. There are more that I can’t name too. These new banks will be keen to offer attractive rates to new savers to get a foothold in the market.

These are extraordinary times, and nobody knows how the situation with Covid-19 will play out. My top tips for savers in the current market are:

  • Keep a sensible amount of money in an easy access account so you have access to funds to help you, in case we are in a prolonged period of lock down
  • Check the rates on your account – use the lock down to review your current savings rates and switch if they are not competitive enough. Almost all the best rates are available online so now is a perfect time to make sure you’re earning the best return you can.
  • Expect the market to be volatile so don’t procrastinate if you see a good deal – apply for and secure the rate straight away. Most savings accounts give you a window of between 5 and 31 days to fund it, with 14 being typical, so you don’t have to put your money straight in, if you want to take a bit of time to be sure.

Stay safe everyone and hopefully next month’s column will be in a more positive climate.

 

What are the best rates currently?

As we have witnessed recently, the savings market changes extremely quickly. We always recommend that you check our website for the latest rates. At time of print, our best personal savings rates are:

 

Term

 

 

Interest Rate

 

Provider

Instant Savings

1.31%

Virgin Money

Notice

1.65%

Investec

1 Year

1.60%

Bank of London & Middle East

18 Months

1.65%

Bank of London & Middle East

2 Year

1.70%

Bank of London & Middle East

3 Year

1.81%

Secure Trust Bank

4 Year

1.80%

RCI Bank

5 Year

2.00%

Gatehouse Bank

About The Savings Guru

We help savers get the best deal for their money by providing unique insight in to the savings market.  We help prospective banks apply for a banking licence and we help build customer services, products and marketing for them.  We also work with existing banks and building societies to improve their savings propositions.  This  insider view of savings means we are uniquely placed to help savers.

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