Saving products fall to historic low – what are the alternatives for savers?

Savers continue to face a challenging market as the number of savings products available has fallen to its lowest level on record and average rates across all charts are below 1.00%.

Research due to be released in the Moneyfacts UK Savings Trends Treasury Report reveals that the number of savings accounts on the market, including ISAs, has fallen to 1,398, its lowest number since our electronic records began in 2007. In addition to this, average rates across all savings products have fallen significantly since the beginning of the year.

The average longer-term fixed rate bond has fallen by 0.56% since January, falling from 1.48% in January 2020 to 0.92% in July. Meanwhile, a similar picture can be seen with the average longer-term fixed ISA rate, which fell by 0.57%, falling from 1.37% in January to 0.80%. Savers looking to lock into a short-term account will also be disappointed to see that the average one year fixed rate bond has fallen by 0.50%, from 1.20% in January to 0.70% in July, and the average one year fixed rate ISA has seen an even bigger fall of 0.54%, from 1.15% in January to 0.61% in July.

Meanwhile, as many consumers have been turning to easy access accounts to ensure quick access to their funds during these times of economic uncertainty, average rates on these accounts have also fallen and now offer savers very little interest for their savings. The average easy access rate has reduced from 0.59% in January to just 0.24% in July and the average easy access ISA rate has reduced from 0.85% in January to 0.37% in July.

*Longer-term fixed bonds or ISAs are those with terms over 550 days. Average interest rates based on a £5,000 deposit as at the start of the month. Source: Moneyfacts Treasury Reports

Despite the fall in average savings rates, research carried out by Aegon has found that since the start of the Coronavirus crisis, 12% of consumers have set up a new savings fund and, of these, 70% have chosen cash-based savings over stocks and shares investments. Savers opting for cash-based savings accounts are urged to act quickly to secure the best deals as it is likely that savings rates will continue to fall in the coming months, as Rachel Springall, savings expert at Moneyfactscompare.co.uk, explained: “It is imperative that savers act quickly to take advantage of the top rates as providers are repricing deals rapidly.”

She added: “Overall, the outlook for the savings market appears uncertain and providers will need to continue to adjust their market position if they are dealing with an influx of deposits. As it stands, savings providers may be reaching their desired subscription levels quicker than they expect, particularly if savers put away additional disposable income amassed during lockdown.”

For savers looking for a long-term option for their savings, a stocks and shares ISA could be considered. Consumers should be aware that investing in a stocks and shares ISA is a much risker alternative to a cash savings account and it could not only result in the investor not making a return on their investment, but they could lose their initial deposit as well. A stocks and shares ISA is usually only considered as a long-term option as investors will have to be prepared for their investment to rise and fall over time. For example, during the 2019/20 tax year, the average stocks and shares ISA fund in the UK fell by 13%, but last month it was reported that it had increased by 15.57% in the new tax year – although investors should be aware that past performance is no indication of future performance. To find out more about stocks and shares ISAs, read our guide Moving your savings to a stocks and shares ISA, as well as looking at our stocks and shares ISA chart.

Alternatively, another option for long-term investors is a buy-to-let (BTL) property. Mortgage rates have been falling on BTL deals and last week we reported that the BTL mortgage market seems to be showing the first signs of recovery as average rates start to fall. This, coupled with the Government temporarily increasing the level at which Stamp Duty tax applies on BTL properties to £500,000, has made investing in property more attractive for many investors. Saying this, those considering investing in BTL should be aware that this investment requires more day-to-day management, as well as additional expenses that should be factored into the investment. For more information, read our story Would investing £40,000 into a BTL property offer better returns than a savings account?, as well as our guide Five steps to becoming a buy-to-let landlord.