What next for savers in 2020: The battle for decent rates continues

For many savers 2019 was a tough year, with lenders slashing rates across the board

For many savers 2019 was a tough year, with lenders slashing rates across the board.

Top-rated regular savings accounts at 5% look as if they are on their way to becoming a thing of the past. In November, M&S Bank cut the rate on its savings account from 5% to 2.75%.

It followed similar cuts by HSBC and First Direct, which also reduced their regular savings rates to 2.75%.

Now that regular saver rates have fallen, savers wishing to put away a lump sum could find themselves earning more interest elsewhere. This is because regular savings accounts calculate interest only on what you have in your account each month.

For example, the First Direct Regular Saver allows you to put away £300 each month – a total of £3,600 a year – which at an interest rate of 2.75% gives you £3,654 after one year.

However, if you have a lump sum of £3,600, you can actually earn more interest by putting it all into an account up front. For example, in the Marcus account from Goldman Sachs, you would have £3,699 after one year.

Current account options

Banks have also been cutting back on current account rates and perks. In July, TSB cut the interest rate on its 5% Classic Plus Current Account to 3% on balances up to £1,500.

Since then, NatWest and Royal Bank of Scotland have announced plans to scrap cashback for Reward customers from February 2020. This means customers will no longer be able to get cashback on bills for electricity, gas and council tax.

Nationwide FlexDirect still offers a generous 5% interest rate on balances up to £2,500. However, after one year the rate drops to 1%. You also have to make sure you pay in at least £1,000 a month.

Easy-access accounts

Interest rates have also been falling on easy-access accounts. Goldman Sachs dealt another blow to savers when it cut its market-leading Marcus account rate from 1.5% to 1.45% in September.

Coventry Building Society then claimed the top spot with its 1.46% easy access account, but this was pulled in November, leaving Marcus the top-paying account again.

Bonds and ISAs

Bond and ISA rates are at their lowest since 2017 with average long-term fixed bond rates at 1.54%, according to Moneyfacts. If you can lock your money away for longer, you can earn more than with an easy-access account.

The current highest paying one-year bond is from Ikano Bank at 1.72%. The account can be opened online and requires a minimum deposit of £1,000.

If you are happy to put your  money away for longer, Gatehouse Bank has a three-year account at 2%, while Union Bank of India has a five-year fixed account at 2.1%.

The outlook has been equally glum for ISA savers, with rates also falling. The current highest one-year fixed rate cash ISA is from Aldermore at 1.4%, while Paragon has a five-year account at 1.8%.

FEATURED PRODUCT

Nationwide FlexDirect 5%

The 5% interest rate is an introductory 12 month offer – when it ends the rate drops to just 1%. Interest is limited to the first £2,500 of your balance and you will need to pay in at least £1,000 a month. Agreed overdrafts are free for the first year.