The past year has been a dream for savers as rising interest rates have helped push up returns on savings accounts, but reality is starting to bite.
Savings rates hit dizzy heights this year after decades in the doldrums, with one-year fixed rates reaching above 6%, but Moneyfacts data has revealed the biggest monthly drop in returns since 2009- from 5.35% in November to 5.13% in December.
It comes as the Bank of England froze the base rate at 5.25% for the third time last week and there have already been warning signs that rates could fall further on the best savings deals.
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Rachel Springall, finance expert at Moneyfacts, highlights that at the start of November 2023, around 20% of live savings accounts could beat 5.25%, but there are now fewer than 10%.
Plus, there is an expectation for savings rates to keep falling next year as experts believe interest rates have hit their peak. “Overall, 2023 has been a good year for savers, but it has been largely expected that fixed rates would come down,” Springall adds.
Find out how fast savings rates are dropping and the top rates on the market right now, so you can take advantage of them before they dip.
Savings rates are declining
According to data by Moneyfacts, here’s how much the average savings rate has fallen from November to December, on different types of savings accounts.
| Type of savings account | Average rate in November 2023 | Average rate in December 2023 | Rate difference |
|---|---|---|---|
| Easy access savings account | 3.18% | 3.17% | 0.01% decline |
| One-year fixed bond | 5.36% | 5.13% | 0.23% decline |
| Easy access ISA | 3.29% | 3.31% | 0.02% rise |
| One-year fixed ISA | 5.2% | 4.99% | 0.21% decline |
The biggest monthly drop is amongst the average fixed deals on traditional savings and ISAs, with the average one-year fixed bond showing “its biggest monthly fall since February 2009,” says Springall.
This compares with the period between June and July 2023, when “the average one-year and longer-term fixed bond rates rose by 0.57% and 0.41% respectively,” which is the biggest monthly rise in 2023.
The data shows easy access savings saw a minimal drop of only 0.01%.
It’s looking a bit better for easy access ISAs, as the average rate rose in December by 0.02%.
However, even after the rise the average easy access ISA rate stands around only 3%, which is considerably lower compared to the best savings deals on the market right now.
It’s prime time to bag the top savings rates now, as MoneyWeek has been tracking savings rates too and has seen one-year fixed deals dip in rate at a fast pace. Last week, four deals dropped their rates in the space of 24 hours on the day interest rates were frozen again.
Since then, three lenders have dropped the rate on their one-year fixed bond:
| Provider | Old rate AER | New rate AER |
|---|---|---|
| Aldermore | 5.55% | 5.4% |
| Union Bank of India | 5.7% | 5.35% |
| Bank of London and The Middle East (BLME) | 5.5% | 5.45% |
Metro Bank also dropped its top-paying 5.8% AER one-year fixed bond a week ago.
Plus, our data shows that fixed savings deals peaked on 10 November, and rates have been falling ever since.
What are the best savings rates on the market right now?
Whilst fixed bonds reached rates above 6% in the summer, deals are now offering just over 5.5%. And as expected, easy access savings rates historically offer lower rates than fixed bonds.
As it stands, these are the best savings deals on the market right now:
- The best easy-access savings account is 5.22% AER with Metro Bank.
- The best one-year fixed deal is 5.7% with Al Rayan Bank.
Savers shouldn’t shy away from these rates even though they are falling, as rates on savings are still at an all-time high, above 5%.
Whilst fixed rate ISAs are offering a slightly lower rate than traditional savings accounts, they are also above the 5% mark- plus, it may be well worth it considering the £20,000 tax-wrapper per tax year on your savings.
Read more on how much your cash ISA could save you in tax.
Springall urges savers to act now for the best rates.
“As savings rates drop, it is imperative consumers take time to check their existing accounts and ensure they are being paid a competitive return,” she says.
“As it stands, savers will find some of the best returns are on offer with building societies and challenger banks, so it’s worth keeping a close eye on the market and compare deals carefully.”
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