Savings rates are continuing to climb, providing a little light at the end of a long and dark recovery tunnel for UK savers willing to lock up their money for a fixed period of time
Savers across the UK have witnessed the interest rates on their savings accounts plummet in recent years, falling from a high of 7.5 per cent prior to the credit crunch to an all-time low of 1.5 per cent just a few short months ago. However, with fixed rates on the rise, savings rates appear to be on an upward trend.
The low Bank of England Base Rate and the Government’s Funding for Lending scheme resulted in banks and building societies slashing their interest rates.
Although interest rates on instant savings accounts have yet to witness much positive change, interest rates on fixed-rate savings accounts have been steadily on the rise.
The highest yield five-year fixed-rate savings accounts hit a summer slump and fell below three per cent in the summer months, but several new product launches have reversed the trend.
Michelle Slade, a Moneyfacts analyst, said, “In the last few weeks we have seen many institutions either increasing rates on existing savings products or offering new products at increasingly high rates.”
Many analysts believe the best is yet to come, urging savers to wait a little while longer before locking themselves into a fixed-rate account.
According to Kevin Mountford, Moneysupermarket.com’s head of savings, banks and building societies will likely provide accounts with even higher interest rates in future months. “If you can hold on for a little while longer, it might prove worthwhile. We can expect even better rates to trickle through if, as expected, the Bank of England raises interest rates again,” he said.
Mark Carney, governor of the Bank of England, recently announced that the Funding for Lending scheme, which was launched in August 2012 in order to offer banks additional cash for small firms and home loans, will no longer be applied to mortgages in 2018.
The Funding for Lending scheme, or FLS, may have played a large role in revitalizing the property market, but it has negatively hurt savers as well, because banks have been issuing loans on money provided by the scheme, not their deposits. Thus, they were able to cut interest rates to all-time lows.
With this coming to an end, savings rates seem poised to rebound significantly in the coming months.