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19 Apr 2020

Exclusive: nearly half of fixed-term savings accounts pulled in one month

Savers have 45% fewer fixed-rate cash Isas to choose from since the emergency base rate cut

Which? analysis has revealed the fixed-term savings market has shrunk by almost half, one month on from the Bank of England's decision to cut the base rate to a historic low of 0.1% to help the economy through the coronavirus crisis.

The number of fixed-term cash Isas available to savers is down 45% in a month, from 187 in March to just 103 in April, while there are currently just 37 five-year fixed-term savings accounts - a cut of more than a third since March when 58 were on offer.

What's more, rates are down across the board; the top-rate fixed-rate cash Isas and one-year fixed-rate savings accounts are down by almost a third compared with a year ago.

Here, we explain how the savings landscape has changed, looking at average rates, top rates and the number of accounts across fixed-terms, instant-access and cash Isa accounts.

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How have savings rates changed since the base rate cut?

Which? analysis of Moneyfacts data looked at how average interest rates, top rates and the number of accounts on the market have changed year on year and month on month.

Fixed-rate cash Isas

The new 2020-21 tax year began on 6 April, which means that every adult's £20,000 Isa allowance will reset for another year.

Around this time, there's usually a flurry of activity with providers trying to lure savers into a new account. However, the decision to cut the base rate to a record low seems to have disrupted this trend.

Average AER*Top fixed-rate cash Isa AER**Number of fixed-rate accounts**
April 20191.62%2.3%188
March 20201.29%1.65%187
April 20201.15%1.61%103

*Data from 1st of the month. **Data from 1 April 2019, 19 March 2020 and 15 April 2020. Source: Moneyfacts.

As the table shows, the number of fixed-term cash Isas in March 2020 was very similar to the number in April 2019, yet since the base rate change a whopping 45% of accounts have been withdrawn.

Average AERs and top rates were already lagging behind the rates on offer a year ago, but in the space of a month between March and April 2020, average rates have reduced by 0.14%. That said top rates (which were all five-year fixes in our analysis of the data) haven't suffered too badly and were just 0.04% lower than they were a month ago.

Long-term fixed accounts

The table below shows the average AER for long-term fixed accounts (any term lasting more than 18 months) as well as the top rates and number of accounts for five-year fixed-rate deals.

Average AER*Top five-year fix AER**Number of accounts**
April 20191.87%2.75%85
March 20201.37%2%58
April 20201.28%2%37

*Data from 1st of the month. **Data from 1 April 2019, 19 March 2020 and 15 April 2020. Source: Moneyfacts.

Average rates have reduced by 0.11% over the past month.

Rates had already been in decline before the base rate changed, but as average rates had only fallen 0.5% over the previous 11 months between April 2019 and March 2020, a 0.11% fall in a month could be the start of a much steeper decline.

But it's the number of accounts on the market that shows the biggest change; there are just 37 to choose from at the moment, 56% fewer than in April last year, and 36% less than there were just a few weeks ago in March.

The trend for providers pulling their long-term fixed-rate accounts from the market suggests they are unwilling to gamble and make commitments to savers in these uncertain times.

On the plus side, the current top rate account does at least beat the current rate of inflation (1.7% in February). So if you did want to commit to a longer-term account, at least your savings would be growing in real terms.

One-year fixed accounts

The table below shows how one-year fixed-term accounts have fared over the past year and month.

Average AER*Top one-year fix AER**Number of accounts**
April 20191.42%2.32%156
March 20201.15%1.6%118
April 20201.09%1.6%85

*Data from 1st of the month. **Date from 1 April 2019, 19 March 2020 and 15 April 2020. Source: Moneyfacts.

Anyone who locked up their money for a year last April will be looking at a very different savings landscape this year. There is almost half the number of one-year fixed-rate accounts to choose from, with average rates only just exceeding 1% AER.

As with longer-term fixed accounts, a large number of accounts have been withdrawn in the past month - more than a quarter, in fact. But top rates haven't yet dropped, so the accounts that are left have at least remained competitive.

Instant-access accounts

In times of uncertainty, many savers will opt for instant-access accounts over locking their money away. While this makes sense in terms of having the cash available whenever you might need it, you might be giving up a lot of interest.

However, while the table below shows that instant-access accounts are on the decline, along with fixed-term accounts, the differences aren't as stark.

Average AER*Top instant-access AER**Number of accounts**
April 20190.64%1.5%342
March 20200.56%1.31%322
April 20200.51%1.3%261

*Data from 1st of the month. **Data from 1 April 2019, 19 March 2020 and 15 April 2020. Source: Moneyfacts.

If there's an increased demand for instant-access accounts, this can encourage rates to be more competitive, and for more providers to keep their accounts open. This could be why average and top rates have only reduced by 0.05% and 0.01% in the past month.

The number of accounts on the market fell by just 2% between April 2019 and March 2020. But in just under four weeks since the base rate cut on 19 March, the number of instant access accounts has fallen by almost a fifth.

Should you switch your savings account?

With many rates already being so low, you might think there's little point in trying to switch to a new account that may only offer 0.5% more than what you already earn.

While this is true to an extent, there are a few reasons why you might want to act now.

  • You can beat the upcoming rate cuts: we've already heard about several providers planning to reduce their rates in the coming months, includingthe likes of First Direct which will be reducing some of its savings account rates to just 0.01% AER in mid-June.
  • Even earning just 0.5% more can mean an extra £272 over five years: say you were lucky enough to be able to save £10,000 for five years and went for the current top-rate of 2%; in five years' time you'd have £11,050. But if you perhaps waited and invested when rates fell further to 1.5%, you'd have £10,778 - £272 less.
  • Term Funding Scheme offers cheap loans for banks:launched on 15 April, the Term Funding Scheme offers four years of borrowing at rates close to the base rate (so, incredibly low) - something banks can take advantage of until April 2021. There have previously been schemes like this in August 2012 and August 2016, which have both caused significant cuts in savings rates - so it's likely this will happen again.

Find out more: how to find the best savings account

How can the base rate affect your savings?

The Bank of England base rate dictates how much interest banks have to pay for borrowing money; this is usually done in order to offer loans and mortgages, where profit is made from the interest.

In times when the base rate is high, banks will often bolster their savings rates to encourage people to deposit their cash with the banks, which is used to fund the loans instead.

A low base rate means it's cheaper for banks to borrow, encouraging them to reduce rates on mortgages. However, it also means banks won't need to attract money from savers, and instead will slash savings rates at the same time as mortgage rates.

The Bank of England base rate had been at 0.75% since August 2018, before it was cut to 0.25% in mid-March, and 0.1% a week later to bolster the economy against the impact of the coronavirus pandemic.