Cash savings rates war lures savers

Laura Suter
26 June 2019

UK Finance has today released its latest Household Finance update, showing:

•        Nervous savers rush to cash ISAs – ploughing in £11bn 
•        Rates war in cash savings market lures more savers 
•        £655bn is now sitting in instant-access accounts

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“Savers have collectively put almost £50bn more into instant-access cash savings accounts over the past two years, in most cases guaranteeing losses in real terms. The amount in instant-access accounts rose to £654.6bn in May 2019, as the rates war in the savings market heated up and drew more savers in.

“The launch of the Marcus account from Goldman Sachs shook up the sleepy savings market and forced more banks and building societies to up their rates, meaning nine providers are now offering easy access accounts with rates above 1.4%. There’s no doubt that this has helped to draw more savers into the market, and away from fixed-term accounts. 

“Savers may be expecting the Bank of England to gradually raise interest rates, making them reluctant to lock up their money for longer but progress here has been hampered by Brexit and sluggish economic growth.

“While the 1.5% rate offered by Marcus, Virgin Money and Cynergy Bank is a boost for anyone holding cash, it’s still below inflation and savers are in the perverse position of rushing to lock in a loss in real terms. That’s fine if you know that you need to access the cash in the short term, but those who are saving for the future could be missing out.

“The ISA market also saw a last-minute rush from savers. The amount saved into cash ISA accounts has flatlined for the past two years, but the dash to cash saw £11bn more ploughed into the accounts in the first few months of this year. 

“Given the ongoing political uncertainty in the UK and the unknown impact of global trade wars, investors remain nervous about where to allocate their money and whether stock markets are going to fall, so we’ve likely seen some of them park their money in cash ISAs to buy some time. With the average cash ISA rate standing at a measly 0.95%* at the peak of the ISA season, savers need to be wary of losing out in real terms and missing out on potential investment returns. 

“In the first half of the year someone with £10,000 saved into the average cash ISA easy-access account would have earned £46.50 in interest, compared to £1,050 if the money had been invested in the FTSE 100 or £1,380 if it was in the FTSE All World.”

*Based on Bank of England data.

Laura Suter
Personal Finance Analyst
Laura Suter is personal finance analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.
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