Annual Review of Savings 2020
December 2020
By Anthony Tunmore
2020 has been a challenging year for savers with the double impact of the global pandemic and the move towards the exit of the UK from the European Union. The year began with positive expectations for rate rises as news began to feed through that the Brexit stalemate had ended with an agreement being reached. Simultaneously however, news of a new virus started to build and as information regarding the high rate of its transmission became known, emergency action was taken around the world and particularly across Europe to stem the flow for healthcare services.
In March 2020, the Monetary Policy Committee (MPC) announced two emergency rate reductions to support the economy and the UK entered its first lockdown. We can see the impact on Instant Access rates in Figure 1 as the base rate cuts fed through into the market through April to May.
While rates decreased across the entire market, the effects have been more pronounced for Personal savers. Figure 2 shows the impact on Instant Access savings rates for Personal savers while Figures 3 and 4 show the impact for Corporate and Charitable savers respectively.
Over the course of the year, the top quartile for Personal savers has fallen from a high in March of 1.00% on Instant Access to a low in May of 0.66% before recovering to 0.80% in December. Corporates have seen a gradual decline from a January high of 0.81% to a June low of 0.60%, closing in December slightly higher at 0.65%. Charities have also seen a decline over the course of the year from 0.75% high in June to a 0.31% low in December.
In the most part, the rate changes have been driven by the number of products available on any one given day. We have noticed throughout the year that many providers have entered and exited the market quickly and this has led to great deal of savings volatility. Savers have needed to act quickly in order to obtain competitive rates as the providers have sought to manage their inflows. The market leading NS&I Income Bond during Q2 and Q3 of this year led to billions of pounds entering the product showing how sensitive the market is to price changes, particularly while rates are so low.
In terms of the best rates available, Figure 5 showcases the rates available in the top quartile for all different types of savers across the most popular terms from Instant Access through to five years. We deconstruct those rates by classifying the providers into three categories: 1) the Big 4 providers defined as Barclays, RBS, Lloyds and HSBC; 2) The Challenger banks defined from a list of 51 providers including Aldermore Bank, OakNorth Bank and Redwood Bank to name but a few; and 3) Building Societies.
We can see in Figure 5 that the best rates in the top quartile have been offered mostly by Building Societies, followed by Challenger banks and finally the Big 4 providers have offered the lowest rates, and in many instances haven’t reached the top quartile for the rates offered. Rates have largely increased as the term has lengthened but there have been a few instances where shorter-term rates have exceeded those on longer terms. For example, 6 month and 9 month terms have tended to deliver better rates offered on 90 day and 120 day terms instead. Such products are more attractive as they offer a better return with greater liquidity too.
It’s expected that rates will plateau throughout the year ahead and much speculation remains around whether the Monetary Policy Committee (MPC) will vote to move rates negative for the first time in the 327-year history of the Bank of England. We run extensive analysis on a monthly basis and our Ongoing Monitoring team will keep you updated on rate changes and better rate opportunities as and when appropriate.