The number of savings accounts available has hit an all-time high according to financial data firm Moneyfacts, with 2,385 deals currently available to consumers, businesses and offshore savers.
This is the highest number of accounts on offer since Moneyfacts first began tracking the market in 1988. Back then, there were just 203 savings products available – and this year’s tally of available deals also marks an increase of more than 100 on the number of accounts that were on offer last year.
Crucially, the best savings accounts on the market are currently offering rates at margins high above the Bank of England base rate – but this may spell bad news for when the Monetary Policy Committee decides to raise rates again, as banks are likely to try and bridge the gap by keeping savings returns static.
‘While savings rates may appear low, they are not as low as we would normally expect for a bank base rate of 0.5%,’ Moneyfacts says. ‘In fact the margin between savings rates and Bank of England base rate is at the widest level it has ever been. As we move forward and bank rate rises, it is likely that providers may only pass on a fraction of the rise in an attempt to reduce this margin.’
Finding a best rate savings account
‘The sheer volume of savings accounts on the market is good in terms of the choice it offers consumers,’ says Which? savings analyst Paul Davies, ‘But the proportion of those accounts offering truly competitive deals is likely to be low.
‘Finding a savings account that pays a decent rate is a challenge despite the range of products on offer – so it’s crucial to compare deals and then pick one that suits you. The Which? Best Rate savings accounts review is a good place to start.’
Inflation is still a key issue for savers, with few accounts offering consumers a ‘real’ return on their cash – a problem that particularly affects higher rate taxpayers. Using a cash Isa as a first port of call for saving may help mitigate the effects of inflation on your nest egg.
‘As far as the margin between the market’s best savings rates and the base rate is concerned,’ Paul Davies adds, ‘Moneyfacts’ observation is keen. The rates on some savings accounts – five year bonds, for example – are higher now than they were in 2008 when the Bank of England base rate stood at 3%. Therefore it seems likely that, when the bank rate begins to creep up, savers may not see the rates payable on their accounts rocketing in the way they would like.
‘A savings account with a variable rate tied to the Bank of England base rate may work for you if you’re concerned about this. The tracker bonds currently on offer from Lloyds TSB and Santander may be worth considering – but be sure to properly read the terms and conditions attached to any savings account you select, and be mindful that you will face withdrawal penalties if you tie up your cash in a fixed-rate bond and then need access it before the term of the deal is through.’
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