There was good news for savers at last, with news that Cash ISA rates have increased for the second month running, the first time this has happened since 2012.
Although these are modest rises, savers will be cheered by forecasts that this upward trend may see them getting as much as 3% on one-year savings accounts in the near future.
The Moneyfacts UK Savings Trends Treasury Report shows that the average no notice ISA paid 0.78% in February this year. This is an increase on the 0.68% paid in December 2017.
The average longer-term fixed rate ISA paid a rate of 1.46% in February, up from 1.38% two months before.
Saving rates have been bolstered by November’s interest rate rise, and – more significantly – the withdrawal of two Government schemes, which gave banks access to cheap funding.
This made them less reliant on savers’ deposits, and caused a “catastrophic” collapse in savings rates in recent years.
Rate Increases Across Savings Spectrum
Moneyfacts said rate rises weren’t confined to ISA products. The data provider said that in February alone 27 different savings products had been repriced upwards.
Nationwide Building Society, NatWest, RBS, Paragon Bank, Wesleyan Bank and Investec Bank were among the providers to increase savings rates.
This trend gives weight to predictions from Insignis Cash Solutions — which manages cash portfolios for individuals, charities and companies. It is forecasting that savings rates will rise by up to 0.5% this year, and a further 1% over the next two to three years, pushing one-year savings accounts to the 3% mark.
Charlotte Nelson, finance expert at Moneyfacts, says: “Over the past few years ISA rates have really taken a hit and caused the ISA season to become virtually non-existent. This sign of life has raised the possibility of seeing it return once again.”
Government Initiative Exacerbated Savers’ Woes
Savings experts say that the withdrawal of the Funding for Lending Scheme (FLS) in January, and the Term Funding Scheme (TFS), which will be pulled at the end of February, is having a marked effect on the savings market.
The FLS was introduced in 2012, in the wake of the credit crunch and was designed to stimulate mortgage and small business lending.
The TFS was introduced after the Brexit vote when interest rates were cut to 0.25%. It was hoped this would encourage banks to pass on this full rate reduction to borrowers.
But both reduced banks’ reliance on savers for raising funds, and savings rates collapsed as a result.
Figures from Moneyfacts show that the rate paid on the average easy access account has more than halved since the introduction of the FLS.
In July 2012, the average easy access account paid 1.03%. This had fallen to 0.83% by January 2013, with savers getting an average of just 0.48% in January 2018. In each of these months the Base Rate stood at 0.5%.
A Small Step in the Right Direction
Paul Richard, chairman of Insignis Cash Solutions says: “The end of TFS [and the earlier FLS] will be more important to savers than any Bank of England rate rise.
“Instant access rates will not rise dramatically in the short term, but we expect savers to increasingly benefit from longer-term savings products. As banks work to replace the BoE liquidity, both notice and term accounts should see improvements further down the line.”
He adds that rates could be further bolstered by increased competition in the savings market, and further BoE rates rises over the next couple of years.
But Nelson cautioned savers against expecting any “dramatic uplift”. She says: “Most of the rates rises we have seen have come from challenger banks looking to make inroads into the savings market.
“Although TFS will be withdrawn at the end of February, banks are able to use the reserves they have drawn for a further four years, so it may be a while before we see a more significant shift in favour of savers. However this is a much welcomed step in the right direction.”
