What’s the latest news from the savings market? We monitor all the latest moves and keep you updated regularly with the key developments.
Got a savings story to share? Email: amichael@forbesadvisor.com
11 July: Cost-Of-Living Crisis Bites Into Savers’ Lockdown Gains
Financial gains made by UK savers during lockdowns imposed on them by the Covid-19 pandemic have been slashed back as a result of the ongoing cost-of-living crisis and need to meet rising prices, according to wealth manager Quilter.
Research carried out on behalf of the company found that just over half (53%) of the nation set aside money in savings and investments during the spate of coronavirus lockdowns that were imposed on the country during 2020 and 2021.
Quilter said that baby boomers – those born between 1946 and 1964 – were most likely to have saved money during pandemic-enforced lockdowns. Of this cohort, well over half (59%) said they were yet to dip into those funds.
In contrast, the wealth manager found that around one-in-seven (15%) of those who had saved money during lockdowns had already spent the cash they had put to one side.
In addition, more than a third of people (39%) told Quilter that they had already made a significant dent in their savings, with many spending up to three-quarters of the money they had squirreled away.
Quilter added that nearly half (46%) of Brits with lockdown savings had needed to dip into their money in the second quarter of this year. This was a significant increase compared with the first three months of 2022, thanks mainly to rising food costs followed closely by soaring fuel prices.
Ian Browne, financial planning expert at Quilter said: “While many people were able to save during the lockdowns and have had those funds to fall back on during the cost-of-living crisis, almost half were unable to save in the first place and could be left in a financially vulnerable position.”
“Even those who were able to put some money aside have seen their savings rapidly swallowed up by rising costs, particularly on day-to-day bills such as food, car fuel and heating and electricity.”
16 June: Take Advantage Of Bank Rate Hike, Savers Told
Financial experts have urged savers to take advantage of today’s decision by the Bank of England (BoE) to raise the Bank Rate by a quarter of a percentage point.
As expected, the BoE hiked interest rates from 1% to 1.25% which means bad news for mortgage customers on variable rate deals, but offers a glimmer of hope to savers looking to make maximum use of their money held on deposit.
With the latest data showing that consumer prices rose by 9% in the year to April, finding the highest-possible rate is vital for savers if they want to partly offset high inflation levels.
Alice Haine, personal finance analyst at the investment platform Bestinvest, said: “For cash savers, an interest rate rise is always a good thing, as they can secure higher rates on their savings pots – that is of course if they have spare cash to save in the first place.
“Saving rates have been creeping up to the highest levels seen in a decade, with some accounts now offering up to 1.56% for easy access accounts and up to 3% for fixed-rate products.
“Every penny in additional interest is a bonus when high inflation is eating away at the purchasing power of incomes. With many households dipping into emergency pots to meet rising food, fuel and energy bills, you need to make sure your money is working as hard as it can.”
Myron Jobson, senior personal finance analyst at interactive investor, said: “Higher rates mean savings will earn more – although some banks and building societies have been fiendishly slow in passing on recent hikes to the base rate.
“With the rate of inflation now higher than the best savings deal in the market, any money in savings loses purchasing power over time – but it still pays to pick the most competitive account.”
Les Cameron, financial expert at M&G Wealth, said: “While today’s announcement is no surprise, what remains to be seen is whether this rise will translate to higher rates available to savers or to increased borrowing costs.
“Reviewing your finances to make sure you’re prepared for the future has never been more important and, for many, that will involve seeking some form of professional financial advice.”
15 June: UK Savers Rely On Savings In Summer
UK consumers are more likely to dip into their savings in August than in any other month of the year, according to Atom Bank.
The research, which analysed customer savings habits between May 2020 and April 2022, also found that the 1st is the most popular day of each month to make a savings withdrawal.
Since going on holiday was the ‘top savings goal’ among Atom customers, it is likely that many August savings withdrawals are being put towards topping up travel expenses.
Aileen Robertson, head of savings at the bank, said: “A common mistake people make when saving for a holiday is not accounting for enough spending money, which may result in unexpected additional expenses while you’re away.
“It’s useful to plan ahead — research which excursions you might want to take and how much on average they cost, factor in transport costs for the whole trip and consider what you’re likely to spend on food and drink.”
However, in the midst of the ongoing cost-of-living crisis, many others are likely to be using savings to make ends meet.
Ms Robertson said: “Many people with good intentions to save are likely feeling worse off right now, and tapping into savings may be seen as the only way to beat the current cost of living squeeze.”
The bank also found that savers tended to withdraw relatively small amounts, with 25% of customers taking out £80 or less.
8 June: 50,000 Lifetime ISA Holders Use Funds To Buy First Home
Sales of stocks and shares individual savings accounts (ISAs) surged during the pandemic, in stark contrast to cash ISAs, which saw their popularity plummet over the same period, according to the latest figures from HM Revenue & Customs (HMRC).
ISAs are tax-efficient wrappers that enable holders to shelter a certain amount of money each year – currently £20,000 – from income tax, dividend tax and capital gains tax.
HMRC says investors opened nearly 3.6 million stocks and shares ISAs during the 2020/21 tax year, a period that coincided with the most disruptive period of the Covid-19 pandemic.
This is an increase of around 860,000 accounts compared with the previous tax year, representing an extra £10 billion in investments year-on-year.
HMRC says the number of cash ISAs opened during 2020/21 fell by 1.6 million to just over 8 million. This meant that the share of cash ISAs as a proportion of the overall number of ISAs sold fell from 75% in the tax year 2019/20 to 66% in 2020/21.
Overall, around 12 million ISAs were taken out during the tax year 2020/21 equating to around £72 billion in cash terms. This compares with the 13 million accounts taken out in the previous tax year.
HMRC figures also reveal that 50,800 people made withdrawals from their Lifetime ISA (LISA) to buy a home in 2020/21, an increase of 15,000 on the previous tax year.
LISAs allow people over 18 and under 40 to save, tax-free, for their first home or to supplement their retirement earnings. HMRC says that the average LISA withdrawal was £13,192 in 2020/21, a £700 increase on the previous year.
Bestinvest’s Adrian Lowery says the figures show how households channelled lockdown savings towards investing: “During the pandemic savings boom many households looked towards investments, rather than cash savings, with the Bank of England having slashed interest rates to an all-time low of 0.10% in March 2020.”
24 May: NS&I Adds £40 Million To Premium Bonds Prize Fund
National Savings and Investment (NS&I), the Government-backed bank responsible for Premium Bonds, has announced an increase to its prize fund rate from 1.00% to 1.40%, with effect from next month.
It will mean an additional 1.4 million prizes will be issued in June’s monthly draw out of an increased prize pot worth £40 million.
The majority of these extra prizes will be valued at £25 or £50, but the number of higher value prizes is also increasing. For example, there will be 98 prizes of £10,000 in each monthly draw from June, compared with the current 58, and 40 prizes of £25,000 compared to the current 24.
The odds of each £1 Premium Bond number winning a Premium Bonds prize will also change from 34,500 to 1 to 24,500 to 1.
Ian Ackerley, chief executive of NS&I said: “The new prize fund rate ensures that Premium Bonds are priced appropriately when compared to the interest rates offered by our competitors.
“It also ensures that we continue to balance the interests of savers, taxpayers and the broader financial services sector.
Premium Bonds, which are held by over 21 million people in the UK, were first introduced in 1956 as an alternative way to invest money. Rather than earning interest every month like regular savings accounts, purchasing a Premium Bond means being entered into a monthly prize draw for cash sums.
These sums range in value from £25 to £1 million, which winners receive tax-free. Every £1 invested in Premium Bonds is equivalent to one entry into the prize draw, but the minimum investment level is £25. Savers can cash out a portion or all of their bonds at any time.
Although investors do not earn monthly interest, the total value of the prize fund increases at a fixed rate, which is occasionally adjusted in line with inflation and interest rates, both of which have been climbing.
11 May: More Than Half Of UK Adults Open Bank Accounts Without Checking Interest Rates
More than half (52%) of adults in the UK have opened a bank account without checking the rate of interest it pays, according to a survey by the savings platform, Raisin.
Little interest in rates
It found that while almost half of all adults do not have a savings account, of those who do, more than a third have never checked interest rates elsewhere to see if they could be getting a better deal.
The survey, which asked 2,000 adults about their banking habits, revealed that ease of access to their cash was more important to savers than interest rates.
Of the respondents with a current account, savings account, or ISA, just 25% said they opened it because of the interest rate.
By comparison, 37% opened their account because it was offered by their current provider through online banking. And with 23% of women and 25% of men using online banking daily according to the survey, savings offers are viewed by a significant number of customers.
Branch versus digital banking
Despite the popularity of online banking, Raisin’s survey found traditional banks and building societies — with physical branches — remain more popular than their digital counterparts.
Nationwide was the most popular, with 57% of customers responding that they liked the provider. It was followed by Halifax which was liked by 51% of customers.
The Raisin survey also revealed that, once UK savers have decided on a bank, they regularly stick with it for years. More than a third (35%) of respondents said they have the same bank account they opened with their parents as a child. People aged under 35 and under are even less likely to have changed banks, with 50% of them retaining the account opened with their parents.
Since banks and building societies often entice new customers with high initial interest rates and even cash bonuses, sticking with the same bank for years is unlikely to net you the best deal.
With the UK in the grips of record inflation and the cost-of-living crisis, finding the most competitive savings accounts is particularly pressing.
Commenting on the research Kevin Mountford, Raisin’s co-founder, said: “The market is incredibly competitive thanks to online and challenger banks vying for your money, [so] do your research to find the best deals and rates — making smarter moves with your money now could help you save a lot more in the long run.”
29 April: Coventry BS Launches Fixed Rate ISA Range
Coventry Building Society has today launched four fixed rate ISAs. The UK’s second largest building society is offering:
- ISA paying 1.50% until 30 September 2023
- ISA paying 1.75% until 20 September 2024
- ISA paying 1.85% until 30 September 2025
- ISA paying 2.00% until 30 September 2026
The four new products join Coventry’s existing Children’s, Additional Allowance, and Easy Access ISAs.
Tom Riley, director of banking and savings at Nationwide Building Society, said: “Many people will be searching for the best rates they can find, suiting their individual saving needs with the peace of mind that a fixed rate provides, so we expect these new ISA products will be very popular.
“ISAs are still an attractive option for those savers wanting to earn interest tax-free that doesn’t count towards their personal savings allowances.”
The Coventry rates stand up well against other providers, including Aldermore, which offers a one year fixed rate ISA paying 1.46% AER, and Skipton Building Society, which offers 2.00% AER on its three year Online Fixed Rate Cash ISA.
Nationwide Building Society is also increasing some of its ISA interest rates, including its Single Access ISA, by up to 0.25% from 1 May 2022.
14 April: Mistaken Savers Think Inflation Leaves Them Better Off
Nearly one-in-nine (13%) cash ISA savers believe that inflation will leave them better off, according to research from Legal & General (L&G). More than half (52%) do not know what impact inflation will have on the real value of their savings over time.
ISA stands for ‘individual savings account’, a tax-efficient financial product supported by the UK government.
UK inflation climbed to 7% earlier this week, its highest level for 30 years. Inflation has risen sharply in recent months due to a number of reasons, including, the worldwide economy waking up after the pandemic, a spike in global energy prices and the Russian invasion of Ukraine.
Despite this, and with inflation predicted to soar even higher later this year, L&G’s research suggested that a large number of Britons could be in for a financial shock.
L&G said that there was £136 billion sitting in cash ISA accounts paying an average interest rate of 0.26%. But it added that two-thirds (64%) of cash ISA savers have taken no action on their savings, even though the return on cash was being far outstripped by the rate of inflation.
The company calculated that a £1,000 deposit with an interest rate of 0.26% would effectively reduce in value by £243 over five years assuming inflation stayed at 6% over that period.
Emma Byron, managing director at L&G Retirement Solutions, said: “Inflation is at its highest rate for three decades and it’s worrying that savers don’t realise that it’s eating away at millions of pounds sitting in low-interest paying accounts. Understanding the impact of inflation is crucial to understand how much money you have in real terms.
“While it is essential to keep some cash in the bank for an emergency fund, savers might want to consider other options to make their money work harder.”
29 March: JP Morgan’s Chase Offers 1.5% Savings Account
Chase, JP Morgan’s new digital bank, has unveiled a savings account for UK customers paying interest at twice the level of the Bank of England (BoE) Bank rate.
The Chase saver account is linked to the provider’s own current account and offers a competitive interest rate of 1.5% AER.
AER, or Annual Equivalent Rate, is the official method of calculating and showing the interest rate for savings accounts and is designed to allow easy comparisons across similar products.
Earlier this month, in a bid to stave off steepling UK inflation, the BoE raised its Bank rate from 0.5% to 0.75%, the third rise in four months.
The JP Morgan saver account is available to new and existing Chase current account holders and can be opened via the company’s app.
Chase said savers can deposit up to £250,000 in total at any time and can access their savings whenever they want, penalty-free and without loss of interest. There is no minimum opening balance.
Research from Chase found that UK consumers are looking for ways to segment their cash in order to better save for specific goals. Customers can open multiple Chase saver accounts to achieve this, each with a personalised name and featuring a unique account number.
The UK’s personal savings allowance (PSA), introduced in 2016, allows basic-rate (20%) taxpayers to earn £1,000 in savings interest tax-free, while higher-rate (40%) taxpayers are allowed to earn up to £500 before tax. Additional-rate (45%) payers receive no allowance.
A basic-rate taxpayer would be able to deposit just under £70,000 in the new Chase saver account without any tax liability at the product’s present rate. A higher-rate taxpayer could have around £34,000 on deposit with the account and not bust the £500 tax-free interest limit.
Shaun Port, Chase’s UK managing director for savings and investments, said: “With the cost of living increasing, we know that consumers want to maximise the interest they can earn with the reassurance of being able to access their savings instantly. We have designed the Chase saver account to provide our customers with maximum flexibility alongside a competitive rate.”
The UK’s Financial Services Compensation Scheme is a financial lifeboat arrangement that protects customers holding up to £85,000 across all accounts held within the umbrella of one banking group.
24 March: Monument Launches Trio Of Savings Accounts
New digital bank Monument has launched a trio of fixed-term savings products which, it claims, pay competitive rates of interest.
Accessible via its app, Monument’s 12-month, fixed-term savings account pays an annual equivalent rate (AER) of 1.80%. AER is the official rate for savings accounts and is designed to allow easy comparisons across similar products.
A two-year version of the account pays 2.05% AER, while Monument’s five-year, fixed-term product features an AER of 2.40%.
Depositors must be 18 over and resident in the UK. Customers are required to hold a minimum balance of £25,000 at any time across Monument savings accounts to qualify for the published rates.
Should they change their mind, customers can cancel an account within 14 days of opening one. Once up and running, however, withdrawals are not permitted.
Monument, which describes itself as the “first neo-bank launched in the UK specifically to meet the unmet demands of mass affluent clients”, received its banking licence last year.
John Saunders, Monument’s chief commercial officer said: “We’re pleased to be offering a range of savings choices to consider, all at competitive rates. Inflation is a real and growing feature of personal finance, so leaving savings in low, or no, interest-bearing accounts makes less sense than ever.”
1 March: Study reveals regional differences in UK saving habits
One in four people in the UK do not have enough cash for emergencies, according to investment platform Hargreaves Lansdown (HL).
The firm defines emergency cash as savings equivalent to at least three months’ worth of essential expenses.
Figures from its Savings & Resilience Barometer, a financial measure put together with consultants Oxford Economics, showed a wide regional disparity in UK savings habits at the start of 2022.
HL identified the North of England, Midlands, Devon and Wales as among 10 so-called ‘notspots’, or regions that featured large shortfalls for cash savings.
According to HL, more than a third (36%) of those in the West Midlands and Tees Valley and Durham reported that they don’t have enough cash set aside in savings.
The same scenario was also reported by a third of people (33%) in Northumberland, Tyne and Wear, Derbyshire, Nottinghamshire, Devon and West Wales.
This contrasted with parts of London and the Home Counties, including Hertfordshire and Bedfordshire, that HL dubbed as savings ‘hotspots’, where more than four in five people claimed they have sufficient amounts of emergency cash.
HL’s Sarah Coles said: “There’s a mountain to climb to level up financial resilience across the UK. The report shows a gulf between areas with plenty of savings and those with huge shortfalls. It’s not simply a North/South divide.”
Separately, financial coaching app Claro Money says more than a quarter (28%) of Brits are relying on nest-eggs to make good shortfalls when outgoings exceed their income, rather than using their savings for aspirational goals such as buying a car or taking a luxury holiday.
Sarah Brill at Claro Money said: “Savings are being called upon to meet the daily cost of living with inflation increases at a 30-year high. Previously, spending habits might have seen Brits save to spend on rewarding big ticket items, but it’s now the mounting cost of living that is nibbling away at Brits’ hard-earned savings.”
15 February: NS&I Doubles Green Savings Bond Rate
Government-backed National Savings & Investments has issued a second tranche of its green savings bond paying 1.3% over a three-year fixed term – twice the amount paid on the first issue of the bond at launch last October.
Someone buying £1,000 of the new bonds, which enable savers to put their money behind initiatives such as renewable energy and cleaner transport, will receive £1,039 at maturity.
Leading three-year bonds on offer from financial institutions are paying around 1.8%.
The latest issue has a minimum initial deposit of £100 and the maximum investment is £100,000 per person. As NS&I is backed by the UK Treasury, 100% of savers’ money is safe. Applicants need to be at least 16.
Savings with other providers are protected up to £85,000 per person under the Financial Services Compensation Scheme.
Once an initial deposit has been made, a 30-day cooling off period gives savers the opportunity to withdraw their cash. After that, savers are prevented from accessing their money until the bond reaches the end of its term.
Sarah Coles at Hargreaves Lansdown says NS&I’s decision to double the green bond’s interest rate is “a dramatic step that shows the old rate was a real disappointment”.
She says the higher rate “may be enough to see the bond flourish”.
Becky O’Connor at online platform interactive investor, says: “While this rate is not top of the best-buys for three-year bonds, which are currently around 1.8%, it is far more compelling than before for those wanting their money to be put to productive use in the UK’s growing low carbon economy, at no risk.”
10 February: NS&I Ups Rates On Direct Saver And Income Bond Accounts
NS&I, the government-backed savings provider, is raising the interest rates on its Direct Saver and Income Bond products to 0.5% gross Annual Equivalent Rate (AER) from today (10 February).
The increase in each case of 0.15 percentage points follows a rise from 0.15% to 0.35% last December. Last week, the Bank of England raised its official Bank rate to 0.5%, its second increase in three months.
The Direct Saver account can be opened with a minimum deposit of £1 with an upper limit of £2 million, while the Income Bond has a minimum investment of £500 and a maximum of £1 million.
Ian Ackerley, NS&I chief executive, said: “The new interest rates will ensure our products are priced in line with the broader savings sector.”
Helen Morrissey at financial advisor Hargreaves Lansdown said: “It is hugely positive to see NS&I boosting rates on these products, but they still remain some way off meeting the best rates available on the market.
“The best easy-access savings rate available is currently 0.71%, so savvy savers willing to shop around can still find better places to stash their cash.”
8 February: Easy-Access Products Dominate 2021 Savings Market
UK savers chose to squirrel away their money in easy-access accounts last year over fixed-rate products or Individual Savings Accounts (ISAs), according to Aldermore Bank.
Analysis by Aldermore of the latest Bank of England Money and Credit data showed that UK personal savings stood at £1.414 trillion in December 2021, a year-on-year increase of 6.5%, or £86 billion.
Aldermore attributed the rise to a continuation of the savings habits that Brits picked up during the 2020 lockdown when the pandemic was at its height. The figure excludes cash held in current accounts and NS&I products such as Premium Bonds.
The bank said the easy-access element of the savings market attracted an additional £99 billion in 2021, an increase of 11.3% year-on-year. The main advantage of easy-access accounts is that they allow savers to withdraw cash as and when they please.
In contrast, Aldermore said that the amount in fixed-rate savings products at the end of 2021 was £9 billion down on the previous year, a drop of 5.7%.
The research also showed that savers deposited £4 billion less in savings-based ISAs by the end of last year compared with 12 months earlier, with the attraction of tax-free benefits from these products failing to offset the depressed interest rates on offer.
Ewan Edwards, savings director at Aldermore Bank, said: “The value of savings cannot be underestimated. It’s very encouraging that the focus on savings we saw in 2020 has continued on and grown further in 2021 as people remain focused on building their financial wealth.”
Average Savings On The Rise
Separate research from Paragon Bank backed up the trend towards greater savings habits. According to the bank, the average non-ISA easy-access balance grew from £10,246 in March 2020 to £12,106 in October 2021.
But Paragon warned that most of these accounts continue to earn a very low interest rate, with 71% of easy-access balances offering an interest rate of 0.1% or less.
The bank added that the number of easy-access, non-ISA accounts with balances of £100,000 or more now makes up a record 2% of all accounts in this sector. This is up from 1.8% in October 2020 and 1.6% in October 2019.
Derek Sprawling, savings director at Paragon Bank, said: “The dominant trend we are noting in the easy-access space is that seven out of 10 savers continue to receive a really low return on their money.
“This is despite rates picking up across the board and best-buy deals offering people the opportunity to earn at least six times more interest than they currently are in a low-paying account.”
