June magazine column
James writes a monthly savings column for Essex based magazines, Beaulieu and Channels. This is his column from their June magazines, which was published late in the month after lockdown restrictions for Covid-19 were eased.
It’s great to be back writing my column again after the enforced break due to Covid-19. The world has changed so much in the past three months and the savings market has been no different.
Prior to lockdown, it was still possible to get 1.31% on an easy access account, 1.65% on a 1 Year Fixed Rate and 2% on a 5 Year. Now there are only 2 different providers paying 1% or more on easy access, a half a dozen providers paying more than 1% on 1 Year Fixed Rates and only BLME is paying over 1.40% on 5 Year money.
Why are rates falling so sharply?
There are a number of reasons for this. The amount of lending that banks are doing, which your savings are used to fund, has dropped substantially. The property market ground to a complete halt and, while many people have suffered financially due to the lockdown, there are others who have found themselves with more money than before. Many of them have paid off loans and credit card debts, further reducing the amount of money banks are lending.
The government has also opened up a new Term Funding Scheme for Small & Medium Enterprises (TFSME) which, in short, is giving banks a cheap source of funding to help support lending to SMEs.
The volatility of the stock market has led many investors to move money into savings and the Bank of England has reduced its base rate from 0.75% to 0.25% then again to 0.10%. All in all, a recipe for the low savings rates that we are seeing currently.
NS&I top the tables
There have been few rays of sunshine for savers, but one has been the cancellation of planned rate cuts by the government backed National Savings & Investments. A raft of interest rate reductions planned for May were cancelled, much to the relief of its 25 million savers.
NS&I looks after £167bn of savings and is one of the largest savings providers in the UK, alongside the ‘big 4’ banks (Barclays, HSBC, Lloyds and RBS), Nationwide and Santander. While those compatriots have barely been near a best buy table for savings in the past decade, NS&I now finds itself top of some.
Its ‘Income Bonds,’ which start at £500 and don’t require any notice to access, pay a table topping 1.16% and its Direct Saver, which can be opened with just £1, pays a next best 1%. Their easy access ISA (0.90%) is only beaten by Al Rayan and the Premium Bonds prize pool is 1.40%.
As NS&I is government backed, all savings with it are 100% protected and risk free. Also, their terms and conditions require 2 months’ notice to change the rate. While this isn’t a long guarantee, it does give a degree of protection on any potential rate reductions and enough notice to look for other options.
Is there any other good news?
Forecasting the market is tricky but I think we are in for more rate cuts sadly. Based on the current economic and coronavirus outlook, I think we will see further falls but I do feel we are reaching the bottom of the market.
My advice is not to tie up your money longer than a 1 Year Fixed Rate and to take any good rates that may come out for that term as soon as you can as we are seeing products launched and withdrawn in a matter of a few days, and rate changes are a daily occurrence and sometimes it feels like its hourly!
Regular savings pay the best rates
One product that is definitely worth considering, particularly those who have extra monthly income they aren’t used to, is to look at regular savings accounts. HSBC, M&S Bank and first direct all pay 2.75% on their monthly regular savers to existing customers. Halifax, Kent Reliance and West Brom Building Society all pay 2% to existing and new customers. Halifax allows up to £250 per month to be saved and Kent Reliance £500 per month.
That’s all for this month. As always, we love to hear your feedback so please let us know if there’s topics you’d like me to cover in future months.