Only Half of Savings Accounts Beat the Base Rate

Just over half the savings accounts on the market deliver interest rates that can beat the Bank of England base rate, Moneyfactscompare.co.uk can reveal.

The findings come from the latest Moneyfacts UK Savings Trends Treasury Report which shows that the number of savings accounts paying interest above the base rate of 0.5% is just 912. This is 55% of the total number of savings products on the market, and the lowest count since 2008. It also represents a significant drop of 12% from just a month ago, and is the largest percentage fall since Moneyfacts’ records began in 2007.

Product choice overall has increased by 269 deals year-on-year to 1,654, including ISAs. Looking just at ISAs, we can see there are now 68 more deals than this time last year.

Interest rates on various types of savings accounts are creeping up across the board. The average easy access savings account has seen its rate rise from 0.21% in February to 0.25% in March, the highest level in almost two years, while the average easy access ISA rate has gone up from 0.26% to 0.30% month-on-month.

The rate on the average notice account has gone up from 0.54% to 0.56%, while notice ISA rates have risen from 0.37% to 0.38% in March.

The average one-year fixed rate bond is now paying 0.89%, more than double this time last year. The average long-term fixed rate bond, defined as those with a term of more than 550 days, is now 1.31%, again double what it was in March 2021.

The trend is similar in ISA products, with the average rate on a one-year fixed rate ISA now at 0.73%, up from 0.59% in February and 0.38% a year ago. The average longer-term fixed rate ISA now pays 1.12%, up from 0.59% this time last year and 1.04% in February.

Rachel Springall, finance expert at Moneyfacts, said there is “room for improvement” in the savings market as, while rates are rising, there are still many products that don’t beat the base rate.

“Despite encouraging signs of rates rising, there is clearly much more room for improvement for cash savers, but it could take a few months yet before consumers will see a base rate rise passed onto them, but there is no guarantee this will even come to light,” she said.

“One of the most popular savings vehicles is undergoing a spate of competition, as easy access accounts are now, on average, paying the highest rate seen since June 2020. However, back in March 2020, the average easy access account returned 0.56%, which is more than double the current return of 0.25%.

“Those savers who are looking to take advantage of a guaranteed cash return over the next year or more will be pleased to see fixed rates rising. The average one-year bond rate may well hit 1% in the months to come should competition continue in the sector. Whether savers are content to lock their cash away for the longer-term is debatable due to the current economic environment, but the average longer-term fixed rate has reached a pre-pandemic high. Savers comparing fixed bonds to ISAs are wise as, while we are seeing rates rise across the ISA market, consumers could find more lucrative rates on deals outside of an ISA wrapper and still can earn their interest tax-free if they stay within their Personal Savings Allowance.”