Savings rates show green shoots
The fixed-rate savings market appears to be showing some green shoots of recovery, while instant access deals continue to suffer from the historically low Bank of England base rate.
The five top fixed-rate products currently boost an average rate of 3.89% - while this a long way from 7% plus deals seen last year, it remains 3.39% above the base rate.
Kevin Mountford, head of banking at moneysupermarket.com, says the gap between base rate and average savings rates has not been this wide since November.
"Savers haven't had much to be cheerful about of late, but some green shoots could now be emerging,” he adds. “Providers are showing they are keen to draw in deposits to shore up their books."
Savers with balances of more than £25,000 have even more cause for celebration, as best-buy fixed savings accounts for those with large deposits appear to have persevered in the face of the historically low Bank of England base rate.
While the best fixed-rate accounts have got less competitive over the past few months, the decrease in rates is minimal when compared to the base rate and average fixed rates.
Between November the February, the base rate fell by 2.5%, from 3.5% to just 1%. As a result, the interest paid on the average fixed-rate account decreased by 1.47%; figures from the Bank of England show the average fixed-rate account paid 4.03% in November, but this plummeted to 2.56% by the end of February.
In contrast, rates on best-buy fixed-rate savings accounts for people with at least £25,000 to put away only suffered a 0.64% fall between November and February.
The research, compiled by Investec Private Bank, shows average rates on best-buy fixed deals fell by 2.9% to 3.54% over the period.
Linda McBain, head of banking at Investec Private Bank, says: “Prior to the Bank of England base rate cuts, many accounts were already paying low and uncompetitive returns on balances of more than £25,000 and those savers seeking larger returns should be prepared to switch to accounts paying consistently attractive returns."
However, instant access deals continue to fare badly in the current climate of low Bank of England base rate.
Research from Sainsbury’s Finance shows that just 14 of the 367 instant access accounts in the market offer rates above 3%. Bank of England figures show the average interest rate on an instant access savings account was just 0.17% at the end of February.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.