Fewer customers opt for regular savings offers despite interest of up to 8%
- Brits have less cash in regular savings deals now than a year ago, data shows
- This is despite the fact that banks strongly promote these agreements with attractive interest rates.
- Instead, savers prefer the security of putting their cash in fixed-rate bonds.
The best savings rates on the market are paid for through regular savings offers, but people are turning their backs on the products and taking out bonuses instead.
Regular savings accounts encourage customers to save a fixed amount each month and interest is typically paid after one year.
Nationwide’s newest regular saver pays 8 per cent, First Direct’s long-standing deal pays 7 per cent and Lloyds Bank 6.25 per cent, although the way interest is calculated is complicated and means Savers may not get as much as they think.
Make your choice: Savers seem to prefer long-term certainty over high overall rates
Despite these seemingly unbeatable rates, there is actually less cash in the hands of regular savers now than there was a year ago, according to an analysis of Caci data by Paragon Bank.
Britons had £20.7 billion in regular savers at the end of August 2023, compared to £21.1 billion in the same period in 2022.
By comparison, there is a huge £528.1bn in easy-access accounts, £258bn in fixed-term arrangements such as bonds and £118bn in premium National Savings and Investment (NS&I) bonds.
Even though banks strongly promote regular savers, the biggest savings trend over the past year has been consumers taking out fixed-term offers, Paragon Bank said.
Savers now have £258 billion in fixed-term agreements, up from £130 billion at the same time last year and an increase of 98 per cent.
Fixed rate Isa balances rose from £76.5 billion to £138.8 billion over the 12 months, an increase of 81.5 per cent.
The best fixed-rate bond, from NS&I, pays interest of 6.2 per cent a year, and the best fixed-rate cash Isa, from Shawbrook, pays 5.83 per cent.
But despite these lower rates, it appears that savers are flocking to fixed-term agreements and leaving regular savers behind.
Paragon Bank savings director Derek Sprawling said: ‘The change in the savings market over the last 12 months has been unprecedented.
‘Never before have we experienced such a shift to fixed rate variants and new account openings, particularly in the Isa market segment.
‘Recording a 98 per cent increase in fixed rate balances overall, and more than doubling the amount held in non-Isa fixed rate variants, will have changed saving habits for years to come.
“Our experience shows that if savers hold money in a fixed rate account, that money will typically change to a new fixed term at maturity.”
Why don’t customers want regular savers?
Regular savings offers, despite their current high rates, have historically been a niche savings offer.
The products typically limit the amount consumers can save to less than £500 a month and sometimes as little as £150. Any withdrawal within one year tends to mean complete loss of interest.
In uncertain economic times, the certainty of a guaranteed level of interest from a fixed rate deal like a bond or Isa can also be attractive, along with the feeling that savings rates could start to fall if the Bank of England cuts the base rate.
The base rate, which the Bank of England held at 5.25 per cent last month, is factored into the savings rates people earn.
Another reason consumers are moving away from regular savers may be that the interest rates on these offers are not as good as they seem at first glance.
For example, the UK’s highest interest rate on Nationwide’s regular savings allows customers to pay up to £200 a month, for a total of £2,400 a year.
Putting £2,400 into an easy-access account paying 8 per cent a year would mean interest of £192.
But the most a saver could earn from the Nationwide deal is £104, meaning an underlying rate closer to 4.25 per cent, rather than 8 per cent.
The reason is the unique way interest is calculated among regular savers, where savers only get the headline rate for one month of the year and get a fraction of it for the remaining 11.