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Savings rates are low at the moment as the Bank of England keeps the base rate set at 0.1 percent. However, despite the poor returns available in the market, savers are set to place £1trillion in easy access accounts over the coming months and banks may be on the verge of improving their offers across the board.
Hargreaves Lansdown (HL) released their most recent “savings state of play” today which examined what people are doing with their money.
Sarah Coles, a personal finance analyst at HL, broke down what may be on the horizon.
She said: “We’re on course to hit £1trillion in easy access savings accounts by the end of this year, and because most of it is still languishing in high street accounts, paying next to nothing, we could miss out on billions of pounds in interest.
“We need to get our savings working harder. Fortunately, the banks are so keen to get us to tie some of this money up that rates have risen.
“April was another bumper month for savers, with an extra £21billion flowing into bank accounts. It’s still fear driving these savings, which means the lion’s share of this cash ends up in easy access accounts, because people are worried they’ll need it in a hurry.
“It’s also pooling in accounts with the high street giants, rather than people shopping around for the best rates on the market with less well-known names.
“This means a massive chunk of missed interest, but it also creates a challenge for the banks themselves.
“They’re lending out money on long-dated mortgages and loans, using money that could be withdrawn at any second by savers. It’s one reason why smaller and newer banks are keen to get us to tie up some of this cash with them for longer, and right now they’re prepared to offer higher interest rates to get us to do so.
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“The good news for savers is that banks have all realised they need longer term deposits at the same time, which is pushing up rates on longer term fixes. You can now fix for 12 months and earn one percent.”
Despite this relatively good news, Sarah went on to acknowledge there is still work to be done.
She continued: “The less positive news for savers is that the growth in borrowing that’s driving this demand for cash is slowing.
“We’re continuing to pay back consumer debt, and repaid another £400million in April.
“The reopening of the economy could see us dusting off our credit cards again, but there’s still an awful lot of uncertainty around how that reopening is going to go.
“Meanwhile, mortgage borrowing is growing more slowly.
“We borrowed an extra £3.3billion in April, compared to the six-month average of £5.7billion.
“A shortage of properties on the market, coupled with the end of the stamp duty holiday at the end of June could push mortgage borrowing lower.
“It means that once you have an emergency fund covering three to six months of essential expenses in an easy access account, and you’re considering tying up savings you won’t need for a year or longer, it’s worth taking advantage of the best deals around now while you can.”
HL also broke down where the nations savings can be found at the moment, as detailed below:
- Cash in accounts not paying interest: Change in balances – £6.73billion, balances outstanding- £244.6billion
- Easy access (paying interest): Change in balances – £13.84billion, balances outstanding- £928.4billion
- Fixed rate accounts: Change in balances – £2.35billion fall, balances outstanding- £153billion
- Cash ISA: Change in balances – £2.77billion, balances outstanding- £296.7billion
- NS&I: Change in balances – £4million fall, balances outstanding- £202.7billion
- Total deposits: Change in balances – £20.99billion, balances outstanding- £1.825trillion
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