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Green Shoots for Savings Rates?

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In this month's expert analysis, our Savings Director, Derek Sprawling, considers some of the factors impacting the recent uplift in interest rates and provides some tips to savers looking to maximise returns.

"Over the course of the last few weeks, we have started to see green shoots across the savings landscape and average interest rates increasing at a growing pace. The trend originated in the fixed rate market initially, which saw rates move past the 1% mark last month - an upward trajectory that has since been maintained. This trend is also now starting to be mirrored on the easy access side, with some of the best-buy products now on the up, and the cash ISA market also showing signs of recovery.

"As the Bank of England Base Rate has remained at a historic low of 0.10% since the pandemic started, rates remain subdued in a relative sense compared to pre-pandemic, but there are a range of factors influencing this gradual uptick in pricing."

Stamp Duty holiday

"One of the most significant factors to influencing pricing is the Stamp Duty holiday, which drove housing transactions to a record high. Rate increases across the savings market are a reflection of those higher lending requirements as financial providers fulfil these record numbers of completions.

"Although the deadline for the £500,000 threshold passed a few weeks ago, the stamp duty holiday remains available on properties valued up to £250,000 until the end of October, so that's one factor pointing to today's upward trajectory being maintained in the short term."

Big banks shifting the averages

"There is also a large disparity between average interest rates and best-buy rates. The most recent Moneyfacts Treasury report analysis showed that instant access average rates still hover around the 0.18% mark - less than a third of the rates making up the best-buy tables.

"Our market analysis also shows that this large disparity is driven by the dominant high street banks, which have been offering very low rates throughout 2021 and pull the averages down. However, those bigger players offering very low rates continue to account for most of the deposits currently being saved in easy access accounts, so this disparity is likely to continue to be stark."

Fixed rate market increase

"There is some good news for fixed rate customers. For the first time since pre-pandemic, customers maturing with a one-year bond or ISA will be able to beat their previous rate if they take the market best-buy, or the top-paying rate across a selection of specialist banks.

"There are a range of factors contributing to the fixed rate market moving first ahead of other product categories when it comes to price recovery. Firstly, this is where the challenger banks are most active, it is therefore a more competitive space than easy access. The fixed rate category has also been in decline over the course of the pandemic, so providers are driving up price in order to entice savers to take up a fixed rate product. This has been effective, and we are seeing those competitive products perform well.

"My advice to savers is to make the most of this current trend and to take out those products while they last - the market at the moment is prone to volatility and it's difficult to predict how it will fluctuate as we head towards winter. For customers not looking to fix their surplus cash, easy access rates are also consistently more competitive across specialist and challenger banks, so it's a good idea to have a look at their provision in order to earn interest on all savings."

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View our consistently competitive savings accounts and cash ISAs

Fixed Rate up to
1.65%
AER*
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Access Accounts up to
0.70%
AER*
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Cash ISAs up to
1.31%
AER*
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Postal Accounts up to
1.65%
AER*
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*AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded on an annual basis.

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551