Today, 2 August, marks exactly one year since the Bank of England increased the base rate from 0.5 to 0.75%
The hike should have been good news for the UK’s savers. In reality, many banks were slow to pass on the increase, or didn’t pass it on in full.
This is unfortunately reflective of some banks’ reluctance – particularly the major players – to do the right thing by their customers.
Despite financial watchdog the Financial Conduct Authority (FCA) attempting to crack down on the cash savings market, customers are still frequently left confused by the array of accounts on offer.
Providers often lure customers in with attractive introductory rates, only to drop the rate on the product after a period, before releasing a new one at higher rate.
Unfortunately, once savers have deposited their money, many don’t keep an eye on what they’re earning and end up in what become uncompetitive products with lower interest rates than those who shop around and switch.
The FCA fights back
In an attempt to tackle this, last year the FCA proposed the introduction of a “Basic Savings Rate” (BSR).
This would be a minimum rate that banks and building societies would have to pay to personal savings customers with easy access cash savings accounts and easy access Cash Isa accounts after a set period.
If a BSR is introduced, banks and building societies would be required to apply a single interest rate to all easy access savings accounts which have been open for a set period of time (for example, 12 months). We’ve yet to hear the outcome of the FCA’s proposal, but it certainly seems a step in the right direction.
It would go some way in making consumers feel supported by their provider and in turn this could inspire more people to think about developing a savings habit.
Worryingly, the UK’s household savings ratio, a measure of income being saved, is at rock bottom. It slumped in the last quarter of 2016 following the referendum and the inflation that followed.
The savings ratio reached a record low in early 2017 and has since stayed only slightly higher.
It could be that savers are feeling disheartened by the continued low base rate, but with the economic conditions uncertain it’s not worth putting off or holding out for a rate increase any time soon.
There are currently some competitive rates on the market – and for those who are willing to put their cash away for a fixed period, it’s worth locking into these fixed rate deals while they’re still available.
Cash Isa comeback
While the political situation isn’t necessarily instilling confidence in savers, it has prompted an interesting trend – the rise in popularity of Cash Isas. The tax-free product, which celebrated its 20th birthday earlier this year, saw £9.07 billion of deposits flow in, in the first six months of the year.
In June alone, the figure was £1.6 billion, more than five times the £295 million in the same month last year₂.
Stock market uncertainty around Brexit, coupled with concern around breaching the personal savings allowance, has served to revive the popularity of Cash Isas.
It’s a shame therefore, that the clock is ticking for account openings for the Cash Isa designed to help first time buyers – the Help to Buy Isa.
Use it or lose it - the Help to Buy: Isa
This scheme offers a maximum bonus of £3,000 of Government funding towards your first home, but it closes to new applicants on 30th November this year.
Anyone thinking of buying a first property in the next ten years should considering opening one now, before losing the opportunity to secure free cash.
Anyone feeling inspired to open a Help to Buy Isa should also be aware you’re not restricted to opening just one type of Cash Isa in the tax year – as it used to be.
With a Portfolio Isa you can mix and match products that suit you best – for example a Help to Buy Isa, easy access Isa and fixed term or notice Isa.
Not every provider offers the Portfolio Isa so it’s worth shopping around to find the one that best suits your needs.
Ewan Edwards is head of savings at Aldermore.
The views expressed in this article are those of the author and do not necessarily reflect the views of Moneywise