1st March 2016
As far as the savings market was concerned, 2015 was the year of the challenger provider, and as a result rates crept up and positivity started to make a welcome return.
However, research from Moneyfacts.co.uk shows that since the start of the year rates on fixed bonds have plunged to new lows.
Charlotte Nelson, finance expert Moneyfacts.co.uk, says: “It’s been a winter of discontent for savers – fixed rate bonds have once again plummeted to record lows and there are currently no signs of an end to this downward path. Fixed rate bonds are often looked to as the best place to get a decent interest rate, and given that rates were starting to creep upwards last year, this new turn of events is extremely disappointing.
“Moneyfacts.co.uk recorded a staggering 222 rate cuts to fixed bonds in the first two months of 2016 with the highest reduction being a whopping 0.74%. As a result, it’s unsurprising that many are beginning to think that these cuts will never end.
“The newer entrants to the savings market in 2015 kick-started some competition as each fought to win pole position in the Best Buy tables, particularly in the fixed market. However, this competitive spirit was short-lived, with competition beginning to ebb now that the newcomers have begun to establish themselves. This is, in part, due to oversubscription of these highly attractive deals, which has prompted the new brands to reduce their offers. Besides, with other rates in the market in freefall, the challenger banks need only to offer a reasonable return to ensure they stay in top position.
“Essentially, this boils down to the failure of the main banks to compete with the new players and boost competition and rates. The challengers make up only a small portion of the market, so their positive impact on the market was always going to be fleeting if the main players didn’t get on board.
“The fall in SWAP rates has also had a negative impact on the fixed bond sector. A drop in these rates means that it is now cheaper for providers to fund their mortgage book, which in turn has led to a drop in longer-term investment rates as providers have less need for savers’ funds.
“With a base rate rise now seeming to have been put out to pasture for the time being, savers inevitably feel as though they are caught in a downward spiral of misery. However, with April bringing the new Personal Savings Allowance, now is a great time for savers to re-evaluate their savings pot to try and get the best returns they can.”