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How much more interest you can now get on your savings

We take a look at the savings’ landscape to see how rates have changed over the first half of the year and see if the rises are over or the best is yet to come…

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The most significant change we’ve seen to the rates this year occurred in April

It’s hard to believe we are already halfway through the year. 

It only seems like yesterday we were welcoming 2023 with optimistic expectations for the year ahead. 

Fast forward six months and the savings world is still making headlines, but maybe not for the reasons we expected. 

The Bank of England’s base rate has increased at a steady rate this year and now stands at a mighty 5%, so savers assumed rates on savings accounts would become more competitive. 

Unfortunately, rates haven’t increased as quickly and many have called for banks to act. 

Progress needs to accelerate 

The Financial Conduct Authority (FCA) released a statement this week explaining that it had challenged firms on why their decision making has been so slow, although it has started to see some positive action. 

The FCA said: “Many people are feeling the squeeze from rising interest rates and prices, so it is more critical than ever that they are offered fair and competitive saving rates.

"Through preparation for our new consumer duty, we have started to see some positive action by banks and building societies to improve their rates, and to ensure their customers are benefiting from better value products. We now want to see that progress accelerate.

"We are also increasingly seeing customers switching their savings products to those with higher rates. We continue to urge savers to shop around to make sure they’re getting the best deal.”

So, with fresh hopes that things will improve, we compiled data from Defaqto* to look at the average interest rates so far this year and how this could impact the next six months.  

Shift in rates during April 

The most significant change we’ve seen to the rates this year occurred in April, when the average interest rate for an easy/instant access account increased by 28.37%. The average interest rate for this type of account in March stood at 2.08% and then it jumped to 2.64% in April. This could be due to the base rate increasing to 4.25% on March 23, and then news that we would expect another hike in May. 

There were similar increases in April for notice savings accounts, with a 7-day and 30-day account experiencing an average interest rate increase of more than 24%, as rates rose to 3.38% and 3.02%. 

Cash ISAs also had a similar story, as the average interest rate for an instant access, regular and notice cash ISA had a significant increase in April. For example, the average interest rate for a cash ISA regular saver increased by a staggering 131.25%. 

Fixed-rate was top of the class

Surprisingly, fixed-rate bonds didn’t have the same big jump in average rates during April, instead this type of savings account maintained a steady increase. 

In January, we reported the average interest rate for a one-year fixed rate bond stood at 3.59% which was a 406% increase from the previous year. This growth continued with 1-year fixed rates rising to an average of 4.1% in April and 4.47% in June. 

Two-year fixed-rate bonds performed the best when the average interest rate hit 4.57% in June. 

This growth has now continued as we are seeing top interest rates of more than 6% in July. 

Cash ISAs struggled to keep up 

And where fixed-rate bonds soared, cash ISAs seemed to struggle. 

Rates on cash ISAs were disappointing as the average interest rate for notice, regular saver, fixed-rate were never able to meet the base rate. In January, the average interest rate for an instant access cash ISA stood at 1.83% and by June it rose to 2.61%, which is a far cry from the base rate’s 5%. 

Notice cash ISAs also struggled as the average interest rate in June was 3.25%. 

Fixed-rate performed slightly better as at the beginning of the year the average interest rate was 3.49% and it rose to 4.15% in June.

Average savings rate vs base rate over time

An illustration of how savings rates have changed in relation to the Bank of England base rate over the two past years. The average rates have been calculated by taking the rates from the whole of market at the time of the base rate change. Source: Defaqto and Bank of England data.

What’s next? 

Overall, the average rates have risen during the past six months but in comparison to the rising household costs and mortgage rates, it is underwhelming. Across all the accounts from January to June 2023, the highest rate we saw was 5.9% from a one-year fixed-rate bond. Plus, the average shows this was not the majority as many banks chose to keep their rates lower than the base rate. 

The glimmer of hope is when you compare the maximum interest rates for each account from January to June, as there were some banks that did increase their rates. 

For example, the maximum interest rate for an instant/easy access account in January was 3.35% and in June it was 4.5%, which is a 34% increase. This was similar with an instant cash ISA as the maximum interest rate in January was 2.85% and it reached 4% in June - a 40% increase. This is in line with the base rate increases as that rose by 42% from January to June. 

The maximum interest rate on savings accounts (January to June 2023)

Data from Defaqto and Money.co.uk. Updated July 13, 2023.

Hopefully, with the likes of the FCA putting pressure on banks to act, we should see some more positive average rates in the second half of the year. 

*We have excluded deals for existing customers, children’s savings accounts and local area restrictions.

See the top-paying instant access, notice and fixed rate savings accounts on the market today

About Lucinda O'Brien

As a trained journalist, Lucinda has spent the past 10 years writing and editing content for regional and national titles, including The Mirror, WalesOnline and Manchester Evening News. She is now a personal finance editor and specialises in savings, helping people to make confident financial decisions so they can save for what matters most.

View Lucinda O'Brien's full biography here or visit the money.co.uk press centre for our latest news.