Since the end of August savings rates have tumbled unceremoniously, making life harder for savers looking for a good deal
Savings rates have been slashed across the board in the past two weeks.
On 27 August the top rate you could get on a five-year fixed rate account was 2.5% with BLME. This has since been slashed to 2.3%.
The same is true further down the list of top accounts. Atom Bank hacked the rate on its one-year fixed saver from 2% to 1.8%.
The Marcus by Goldman Sachs account also cut its rate from 1.5% to 1.45%. And Ford Money closed its popular Flexible Saver to new customers.
Selection of withdrawn or reduced savings deals (27.8.19 - 9.9.19)
|Provider||Product||Gross rate at £10,000||Withdrawn, availability or after cut||Position in sector at £10,000 gross|
|BLME||5 Year Fixed||2.50%*||2.30%||Was top rate|
|Paragon Bank||2 Year Fixed||1.95%||1.90%||Was top 10|
|OakNorth||24 Month Fixed||2.01%||1.95%||Was top 10|
|United Trust Bank||15 Month Fixed||2.00%||1.85%||Was top 10|
|Masthaven Bank||2 Year Fixed||2.05%||1.98%||Was top 10|
|Atom Bank||1 Year Fixed||2.00%||1.80%||Was top 10|
|Metro Bank||18 Month Fixed||2.00%||1.95%||Was top 10|
|Metro Bank||1 Year Fixed||1.90%||1.85%||Was top 10|
|OakNorth||12 Month Fixed ISA||1.55%||1.49%||Was top 10|
|Virgin Money||Double Take E-Saver||1.50%||1.43%||Was top rate|
|Cynergy Bank||Online Easy Access Account||1.50%||Withdrawn and replaced 1.45%||Was top rate|
|Marcus by Goldman Sachs®||Online Savings Account||1.49%||1.44%||Was top five|
|Ford Money||Flexible Saver||1.42%||Now existing customers only||Was top 10|
|Sainsbury's Bank||Defined Access Saver||1.32%||1.29%||Was top 15 (no bonus)|
*Sharia'a compliant, pays an expected profit rate. Source: Moneyfacts.co.uk
So, what is going on?
There are several plausible explanations for the raft of rate cuts from saving providers. And much of it joins together to paint a wider negative picture.
Savings providers could be correcting their rates from wrongly-anticipated Bank of England rate rises. The global economy until quite recently looked set to keep growing and policymakers to tighten monetary policy. But in the past few months economic indicators in the UK, Germany and other developed countries have started flashing for a recession.
Savings providers could have wrongly anticipated a rate rise, and now reversed course to anticipate rate cuts. This is more pronounced thanks to fears over a no-deal Brexit that could lead to a bigger rate cut from the Bank of England too.
Anna Bowes, co-founder of Savings Champion says: “Nobody likes uncertainty and the savings market is no different – it’s impossible to know just what will happen to interest rates in the short term, never mind over the next few years.
"As a result, the market seems to be pricing in lower interest rates. Indicators, such as long-term gilt yields, which at the moment are lower than the current Bank of England base rate, suggest that the Bank of England could cut interest rates, especially in the event of a no-deal Brexit, which would mean that savings rates overall would fall also. However, the Bank has repeatedly said that rates could move in either direction.
"But, as this is unprecedented territory, there is no way to know for sure. And Brexit is not the only economic indicator. The looming spectre of a global recession will also affect the Bank's interest rate decisions."
Another related reason, and perhaps more concrete, is that investors are pulling their cash out of the stock market thanks to recession jitters.
Choppy economic data, threats of a trade war between the US and China, and other events on the horizon such as Brexit, are causing ordinary investors to flee equities and pile into old-fashioned cash savings. This in turn is overwhelming demand for savings providers’ products and forcing them to disincentivise more new deposits.
Rachel Springall, Finance Expert at Moneyfacts.co.uk, says: “Providers making these bold moves are doing so to adjust their market position to cope with growing demand.”
Virgin Money was the first to cut rates and this set off a “domino effect” says Ms Springall.
“It is as clear as day to see how delicate the savings market can be, which is why savers should never assume that the top rates will be around forever. As is proven from the last fortnight of cuts, savers need to be quick with their decision-making, or they could miss out.”
Whether or not the rates continue to plummet remains to be seen. If you have savings or investments and are concerned about current conditions, read our guide to how to prepare your portfolio for a bear market.
It is also important to note however, that there are still better deals available than those mentioned in the table above. Check the Moneywise best buy pages for the top rates, updated every Wednesday.
This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.