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05 Oct 2016

UK long-term savings rates reach new lows

2016 has not been a good year for savings rates; and according to a recent article on the Moneyfacts website, last month they plummeted to the lowest point ever.

The latest figures from the Moneyfacts UK Savings Trends Treasure Report reveal “a particularly significant downturn in the fixed sector of the market,” the article notes. With long-term fixed rate bonds and ISA rates having steadily fallen for 11 consecutive months, they recently dropped to an all-time low in September.

To demonstrate, the average long-term fixed rate has plummeted from 2.10% in October 2015 to 1.34% in September 2016; while over the same period, average long-term fixed ISA rates have dropped from 1.99% to 1.15%.

Furthermore, the dramatic cuts look set to stay thanks to the recent cut to the base rate. As Moneyfacts financial expert Charlotte Nelson explains, “savings rates have been hit hard, with dramatic falls following the Bank of England´s announcement to cut the base rate to 0.25%.”

“The long-term fixed sector has borne the brunt of the rate cuts,” she added, reflecting “the uncertain nature of the markets at large, as well as providers´ lack of desire to secure longer-term funding.”

In what´s likely to be a low-interest environment for some time, banks, lenders and providers do not what to be caught out paying higher rates than are needed. As they do not need savers´ money, the are unlikely to offer higher rates in order to tempt new customers.

There are further warning signs that rates could fall even more, as the Bank of England announces its plans for a Term Funding Scheme - which could have a long-reaching impact on the wider savings market.

The scheme will allow providers to borrow money at generous interest rates, which can be used to lend to borrowers.

But with incentives to use long-term fixed rates likely to diminish, and consumer confidence in the savings market failing, Nelson warns, we can expect to see the longer-term fixed market fall even further in the months to come.

Copyright M2 Bespoke 2016

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