When it comes to hunting for a good savings rate, it’s safe to say that since the pandemic unfolded in March, it has been an increasingly difficult endeavor.
Not that it has been an easy task for a few years, but coronavirus has made things even worse.
It’s not impossible like finding a dodo, more like trying to smuggle a cornered cat into a bag. A tricky, unfulfilling task for minimal reward.
Marcus Bank, which had the best buy easy-access account, shut up shop early in the pandemic for raking in too much cash, while fast-forward to recent weeks and National Savings and Investments have cut rates to the marrow.
Other areas of savings accounts have been hit too: Isas, fixed-rates and current account interest is shrinking, or disappearing altogether.
Sleeping piggy: Many savers have put their money into a deep slumber
Big banks are typically offering 0.01 per cent interest on bread and butter accounts.
But millions hold their savings with them. My theory is, people have given up and are no longer rate chasing, instead just bunging money with a savings account where they can see it easily with their current account, and know it is safe.
It is not safe from inflation, but it is as safe as it can be with the Financial Services Compensation Scheme – or government backing if we’re talking NS&I.
There are three reasons why I believe my theory to hold true. Firstly, data from CACI shows that at the end of June, £2 in every £5 of all easy-access money (excluding Isas) is sitting in an account paying 0.1 per cent or below.
This is a total of £216billion, according to the data analysed by Paragon Bank. A huge sum. The difference between that collective sum earning 1 per cent and 0.1 per cent is sizeable – £2.16billion at 1 per cent or £216million on 0.1 per cent.
Drill down to a personal level though and the gap will probably seem minimal.
Secondly, recent results of some big banks show just how much money they’ve raked in this year from customers.
Lloyds Banking Group held £441billion in deposits at the end of June 2020, up £29billion on the end of December 2019.
Barclays deposits were up 10 per cent to £20.2billion on the end of December 2019 while at Santander deposits were up £7.9billion on the end of December 2019.
None of these banking giants offer good rates.
Thirdly, we’re hoarding money like never before. Recent figures from the Office for National Statistics show the savings ratio – the amount of disposable money being tucked away – has exploded during the pandemic.
Not only is the measure at a record high, but it has absolutely blown the previous record out of the water. That money has to go somewhere – and it appears for most, it has gone into rubbish savings rates, sitting in current accounts or funnelled into NS&I, which is now cutting rates.
How are we saving, have we stopped chasing rates because of the low reward and are people just happy in the knowledge the cash is safe, but not doing much for them? Consumer Trends, with the help of Harris Interactive, takes a look.
The percentage of disposable income saved by households rose to an all-time high of 29.1% between April and June during the coronavirus lockdown
Stick savings with current account provider?
Inertia and convenience are among the many driving factors when it comes to savings, according to an exclusive survey for This is Money by Harris Interactive.
There is also widespread disillusionment with rates and incentives to save currently offered by providers, as well as a reticence to move anything due to the state of the economy.
Just 28 per cent of people know the exact rate of interest they receive on their savings. Meanwhile, 16 per cent don’t know at all.
This rises to more than a quarter for those who hold less than £20,000, who are least likely to gain in monetary terms on the returns from savings.
The research shows that exactly two thirds of people who have savings, do so with their current account provider. This rises to three quarters for those who don’t know the rate they’re receiving.
The main reason for this, the data shows, is down to convenience with three in five people stating this.
Nearly half say they do it because they trust the provider, for ease and security.
This highlights that for many, the more traditional factors of keeping savings safe and with a provider they know remains important, but are often less pertinent than being easily accessible and in the same place as other financial products.
Meanwhile, just 17 per cent say they bag a preferential savings rate as a result of their current account custom.
The research shows that 42 per cent hold savings with a bank or building society they don’t have a current account with, and more than one in four are with NS&I.
Many people often throw out the blasé comment of: rates are so terrible, I may as well keep money under the mattress.
Well, our research shows that 17 per cent of people keep cash savings in their home – surprisingly, this peaks at 27 per cent for the under 35s.
Where next: Rates could continue to collapse in the coming weeks and there has been talks of negative interest rates
Is the rate chase dead?
In my early years as This is Money’s savings reporter, we had a glut of savings accounts, as providers fell over themselves to offer a good rate of return. There were options aplenty.
People would lap up best buy alerts and it is likely they cared more, because the difference between an account paying 0.5 per cent and 4 per cent was pretty juicy, especially for those with five figures or more.
However, it appears savers have had enough and who can blame them?
According to the Harris Interactive survey, 47 per cent of savers check their interest twice a year or less, which given the fact rate cuts are rife at the moment, indicates many have given up bothering, sticking their head in the sand.
Meanwhile, 14 per cent never check the rate and one in five never check elsewhere for better returns. This rises to nearly a third of those with less than £20,000.
Can we expect a big NS&I exodus?
Last month, we saw NS&I make savage cuts to its savings accounts. It was no surprise that cuts came, but the ruthlessness of them did take some in the industry aback.
Its Income Bonds, for example, are falling from 1.15 per cent to just 0.01 per cent. Editor Simon Lambert has previously said that he’d rather a bank told him he was getting nothing than such a pitiful rate, which just seems an insult. It’s likely many others would agree.
It stopped a planned rate cut earlier in the pandemic. Typically, NS&I is a mid-tier player in our savings tables – if it is a best buy, too much money goes in, if it’s too far down the pile, not enough comes in. It is a balancing act.
This is Money assistant editor and consumer journalist, Lee Boyce, writes his Consumer Trends column every Saturday.
It ranges from food and drink and retail, to financial services and travel.
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Once it found itself at the top, money poured in like an overflowing bath. It upped its financing target, and in my opinion, has made itself more of a bad guy than if it had stuck to its guns in the first place.
It means now, millions of people have gone through the rigmarole of opening an account with NS&I, only to see the rates drop a few months later.
In my view, much of the money that has poured in will probably stay and NS&I knows that. People cannot be bothered to take their money out of a ‘safe’ provider for the sake of a few pounds extra interest.
We can see with the bank example, people appear not all that fussed about chasing rates. Premium Bonds, a different product to its simple savings accounts, haven’t been hit as hard.
In our survey, based on 1,075 respondents at the end of September, we scoped out a similar scenario to see what it would take for people to move their money.
We asked: if a provider you had savings accounts/products with notably cut their savings rate (ie from one per cent to 0.1 per cent) which of the following would you be most likely to consider doing:
|Leave the money where it is – savings rates are poor everywhere||29%||16%|
|Switch to another provider offering the same type of product||19%||24%|
|Switch to a longer-term investment that offered a better savings rate||18%||25%|
|Get advice from an independent financial adviser for alternatives||11%||8%|
|Withdraw the balance and keep it in my current account until I find something better||9%||8%|
|Invest in stocks and shares||7%||9%|
|Switch to a non-saving product (eg Premium Bonds)||5%||8%|
|Invest in cryptocurrencies (eg bitcoin)||2%||3%|
|Source: Harris Interactive and This is Money|
The results show that three in 10 would leave the money where it is because savings rates are poor everywhere, despite the huge fall that scenario would entail.
Interestingly, this dropped to 16 per cent of those who have money with NS&I, suggesting they may be more willing to hunt elsewhere out of frustration.
NS&I made even deeper cuts than our scenario laid out, meaning this figure could be higher still.
Among the three in 10 stating they would leave the money where it is, when asked why, some of the comments included:
This is Money and Harris Interactive often team up for exclusive surveys
‘Easier to leave it in the same place as my current account for easy-access,’ and ‘it would have to be an amazing interest rate for me to move accounts and a switching incentive.’
The problem is with that latter statement, this is unlikely to happen in the foreseeable.
Although talks of negative interest rates were quashed by Bank of England chief Andy Haldane, it still looms on the horizon depending on how Covid-19 pans out over winter, which could hit savings rates harder still.
It is not beyond the realms of possibility that banks could pass sub-zero interest rates onto customers by charging them to hold their deposits.
With dwindling accounts and interest on offer, it could be an uncomfortable few years for those who want to keep their cash close and want a return, but don’t want to invest it elsewhere.
THIS IS MONEY’S FIVE OF THE BEST SAVINGS DEALS
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