Top Saving Accounts

Top Fixed Bonds

The most frequently asked question I get asked, by savers, banks and the media, is ‘where are savings rates are heading?’

  

How was 2017?

2017 was a significantly improved year for savers, compared to 2016. The best one and two year fixed-rate bonds paid 1.40% and 1.60% respectively in January 2017, whereas 1.90% and 2.10% per cent were available by the end of 2017 – a full half a percent higher.

The best easy access (accounts that don’t require notice to make withdrawals) rates also improved from just over 1% in January 2017 to 1.30% at the end of the year with a peak of 1.45% achieved in December.

While these rates are some way off the heady days of 2008 when over 6% could be found on a one year fixed rate, it’s a big step in the right direction. 

 

Are rates moving up?

Several financial commentators are getting highly excited about two things happening in the market this year. Many of these commentators predict a boom in savings rates because of these. 

Firstly, two government lending schemes come to an end this month – the Funding for Lending Scheme (known as FLS) and the Term Funding Scheme. These have provided £80bn and £140bn respectively to banks and building societies.

Secondly, open banking has begun. Open banking enables you to give access to banks and companies to your accounts so that they can provide new products and services to help you securely move and manage your money better.

I don’t subscribe to either of these creating a rise in savings rates in 2018. Although the government lending schemes will end this month, it will be some time before the banks that have used these schemes have lent all the money they have been given. Many of them also have deposits they haven’t loaned to customers to use after this money has been used. Only then will they need to attract more money from savers. I wouldn’t be surprised if this wasn’t until at least 2019 before this happens. 

With regards to Open Banking, Barclays, RBS, HSBC and three other banks had to ask for extensions to the 13th January deadline to comply with the law. Many of the smaller banks and financial companies who hope to be the beneficiaries of open banking are not ready to fully take advantage of it either. Recent research by the Unlimited Group found that 91% of consumers had no idea what open banking was. I believe open banking will have a profound impact in the banking market in the longer term but I see very little happening in the short term, and 2018 specifically.

  

Is there any good news?

It’s not all bad news! I do expect interest rates to increase again in 2018 although I suspect at a lower rate than in 2017. There are three reasons for this:

  1. Competition

Ford Money, PCF, Redwood and Wyelands have all entered the savings market in 2017 and there are somewhere in the region of 30 firms going through the process to be awarded a banking licence from the Bank of England and the Prudential Regulation Authority. This is on top of, by my count, 38 new providers who have come in to the market in the past decade.

It is competition from these new entrants that has driven the market in recent years and is likely to continue to do so.

Although rates have softened a little, since the turn of the year, I wouldn’t be surprised to see the best one year rates head towards 2.15–2.25% by the end of the year and easy access to be in the region of 1.50% 

  1. Rise of the cash managers

There’s been significant interest in the savings market from many cash managers and intermediated savings providers, both from the UK and internationally. While companies like Savings Champion have provided solutions for some time, they’ve been joined by the likes of Insignis Cash Solutions and Octopus cash in the UK and we’ve seen German market places such as Deposit Solutions and Raisen enter the market.

Savers tend to turn to these types of solutions when interest rates are higher so the increase in the number of them suggests there’s a more positive outlook for savings.

  1. Switching will continue to get easier

Approximately 80% of people have their current account with the so called big 4 banks (Barclays, Lloyds, HSBC, RBS), or Nationwide or Santander. A similar number also save with these large banking groups as well as the government backed National Savings & Investments. 

However, there has been more regulatory intervention happening in the market in recent years with the current account switching service making it easier to move your bank account (in 7 days).

There will also be a rise in market places from new banking providers like Monzo and Starling who won’t provide their own savings accounts but will partner with the best providers who will offer this.

With open banking and other regulatory intervention almost inevitable, it's likely to get easier and more attractive for those 80% to move their money to accounts paying more attractive rates of return. This is likely to force those larger institutions to compete more on price to hold on to their customers.

 

Where are the best rates in the market now?

Here is a selection of the top paying accounts from our best buy tables:

Type of Account Bank Interest Rate
Easy Access RCI Bank 1.30%
One Year Fixed Atom Bank 1.95%
Two Year Fixed Atom Bank / BLME 2.10%
Three Year Fixed Vanquis Bank 2.22%
Regular Saver Saffron Building Society 3.50%

Rates can change quickly so always check on our website, www.thesavings.guru for the most up to date information and links to click through to the providers.

That’s all for this month.

Have a great February!

James