The savings market is changing and providers are reducing their rates on fixed-rate accounts.
This comes after NS&I pulled its popular one-year fixed-rate bond last Friday. This savings account had a market-leading interest rate of 6.2% and it had been available to customers for just over a month.
Currently, the top interest rate for a similar account is Union Bank of India UK’s 1-year fixed-term deposit at 6.11%, closely followed by Ahli United Bank UK’s 1-year fixed-term deposit via Raisin at 6.10%.
But just because the top rate was pulled, does this mean that others are also dropping their rates?
Well, the average interest rate for all savings accounts hasn’t budged for a few weeks and currently stands at 4.60%. This means that overall, there are still good rates in the market.
However, let’s dig a little deeper to see whether providers have started to drop their rates.
We sourced data from Defaqto to compare interest rates in the market and to see which products had decreased their rates in October so far.
We were keen to look at the products that everyone can access, so we excluded savings accounts that are only for existing customers and those that had area restrictions.
Interestingly, we found that so far in October, interest rates on 68 products have decreased. In comparison, only 49 products in September experienced a drop in interest and a mere five products decreased in August.
This trend shows providers are starting to look at their interest and deciding to decrease the rates.
This could be a response to NS&I’s decision to pull its deal or it could be due to the base rate sticking at 5.25%. This is of course speculation, so let’s get back to the numbers.
In the past two months, the type of products that experienced a drop in interest were mostly cash ISAs and fixed-rate accounts. Whereas in October, the majority of products impacted by an interest rate decrease were those offering a fixed-term bond.
For example, Aldermore’s 1-year fixed-rate account had a maximum interest rate of 5.90% last month and now it stands at 5.61%. Charter Savings Bank was also offering a 1-year fixed-rate at 6% and now it’s decreased to 5.85%. Other providers that have dropped their interest rates on fixed-rate products include Close Brothers Savings, Cynergy Bank, Tesco and Ford Money.
However, it’s important to note that these changes have not been drastic. We are seeing only small percentage decreases so far, which is why the average interest rate for savings accounts is stable.
There are also plenty of deals still in the market offering competitive interest rates, with fixed-rate bonds above 6% and easy access accounts offering 5.2%.
Easy access accounts are a great alternative to fixed-rate bonds as it means savers don’t have to lock away their money for a set period of time, and can withdraw savings when they need it.
It’s also worth considering locking away your money for longer if you think rates will continue to drop. JN Bank currently has a 5-year fixed-rate account offering 5.8%, which means you can earn extra money on your savings for a prolonged period.
So, continue to compare savings accounts, and if your money is sitting in an account earning little to no interest, then consider taking advantage of the rates that are still available.
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.