Banks squeeze savers because fixed interest rates for one year are at the lowest level in three years
The big savings squeeze continues: the average fixed interest rate over a year now pays less than 1% when banks close a deal – will the short-term accounts get even lower?
- The average one-year fixed rate bond pays 0.99% and Isa 0.91%
- This is a decrease of 0.16 and 0.23 percentage points respectively since March
- Savings rates have fallen this year due to the effect of the corona virus – with many banks taking fixed-rate deals out of sales
- Here’s how you can help people affected by Covid-19
Savers who have locked money for a year now receive less than 1 percent interest on their deposits for the first time since June 2017 as savings rates continue to fall.
One-year fixed-income bonds and tax-free ISAs now pay an average of 0.99 percent and 0.91 percent, both three-year lows, as banks close savings deals and take offers off sale.
Last week, two banks, Aldermore and Ford Money, pulled all their savings interest deals off sale as an indication of how the corona virus affected the economy and the savings market.
Feel the pressure: one-year fixed income bonds and ISAs have fallen below 1% in the past three months
Aldermore said it had taken the temporary measure to “assess the market position” as it continued to adapt to the coronavirus outbreak, and that easily accessible accounts that allowed savers more flexible access to their money were more popular at the moment.
Best one-year interest rates fell to 1.5 percent after Zenith Bank paid its bill earlier and paid 1.53 percent with 0.1 percentage point, coupled with cuts from Ford Money, Investec, Marcus, RCI Bank and Smartsave last week enough to get a one-year fixed rate below 1 percent for the first time in 37 months.
This time, the average rate last week was 1.01 percent, according to Moneyfacts. As a result of the latest decline, one-year savings rates have fallen by 0.16 percentage points since March, while long-term interest rates have fallen by 0.19 percentage points.
Last May, the best one-year fixed-rate deal paid 2.2 percent, £ 70 more in interest on a £ 10,000 down payment than the highest rate of 1.5 percent now, Moneyfacts said.
|Account||Rate March 2020||Rate April 2020||Review May 18, 2020|
|One year fixed rate||1.15%||1.09%||0.99%|
|Long-term interest (18 months or longer)||1.37%||1.28%||1.18%|
|Isa in the longer term||1.29%||1.15%||1.07%|
Tax-free savers have received an even bigger blow lately, with the average one-year Isa paying 0.23 percentage points less than early March, despite the fact that March and April are usually a time when banks are fighting for Isa savers’ money.
Moneyfacts ‘Rachel Springall said:’ As we had seen last month, savings providers have closed most deals every month since our electronic data started in 2007 and while the number of products disappearing month-on-month between April and May is still disappearing always.
“The total number of savings accounts has now fallen to three-year lows.
‘The choice for savers is decreasing, in fact, 220 deals have disappeared since the beginning of March.
“Those savers who are about to terminate their fixed bonds may want to prepare for a shock, as they will find that top rates have fallen significantly over the years.”
After initially holding up well in the wake of two emergency cuts from the Bank of England that raised the base rate to a historic low of 0.1 percent on March 19, one-year fixed interest rates are now falling rapidly.
It is unlikely that the smaller banks that offer the best fixed rate savings will have to pay savers decent rates at the moment, while those who do not provide emergency loans are unlikely to see as much borrower demand due to the economic slowdown caused by the virus.
And with some savers looking for a place to securely store their deposits for a year, the smaller banks at the top of our tables often can’t handle the flow of money, further reducing savings rates.
“Once a downward interest cycle begins, it can accelerate rapidly as smaller companies become overexposed to the top of the market and have to lower rates to avoid pulling in too much cash,” said a senior banker with a smaller savings bank, ‘leaving other small companies in the same position who then have to behave in the same way.
“Once this happens, without an increase in demand for deposits, it needs a company with a decent volume capacity to hold a rate in place for a reasonable amount of time to effectively get a minimum of reductions.”