Number of savings deals hits record high – as interest rates slump to two-year low

The number of savings products and providers has reached an all-time high, according to the latest data from comparison site Moneyfacts.

There are 1,596 savings accounts on offer, up from 1,420 a year ago. Meanwhile, the number of cash ISAs has crept up from 553 in June 2024 to 639 today.

Savers also have the widest choice of providers to pick from. There are now 153 savings providers, up from 152 last month, another record high.

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Rachel Springall, finance expert at Moneyfacts, comments: “Savers may be encouraged to see the array of providers and overall choice of deals has reached a record high. The steady rise of challenger banks has been a big contributing factor over recent years, and the variety of accounts to land on to the market can be useful for customers who have diverging needs.”

However, at the same time, savers are facing dwindling returns on their cash. Month-on-month average savings rates have fallen across the spectrum, with variable rates dipping to their lowest levels in almost two years.

In particular, the average easy-access savings rate is now 2.71%, its lowest level since July 2023, while the average easy-access ISA has dropped to 2.98%, its lowest since August 2023.

The average one-year fixed bond rate now sits at 4.01% (lowest since May 2023).

We take a look at what’s happening in the savings market.

Savings rates fall across the spectrum

Interest rates on savings accounts and cash ISAs have been on a downward trend lately.

For example, the average one-year cash ISA was paying 4.4% a year ago. Last month it paid 4.02%, and now the rate has slipped below 4% (3.94% to be precise).

It’s a similar story with easy-access savings accounts. A year ago the average rate was 3.12%. A month ago, the average was 2.78%. Today it pays 2.71%.

A string of cuts to the Bank of England base rate is mostly to blame for falling savings rates. Bank rate is currently 4.25%. A year ago, it was sitting at 5.25%.

What does the future hold for the savings market?

According to Springall, any further cuts to the base rate could “dampen growth in product choice and new rivals”, as well as triggering further savings rate reductions.

The Bank of England will meet again this Thursday, 19 June, to decide whether to change the base rate again.

So, if the base rate is cut again this year – which is widely expected – savers may have to brace themselves for more cuts to their savings accounts and cash ISAs, as well as a potential decline in savings deals to choose from.

Having said that, Springall notes that “savings providers have been monitoring movements in swap rates to gauge future rate expectations, but they must balance cuts or rises against their deposit funding targets”.

So, another cut to the base rate does not always lead to a savings provider trimming its rates.

Some providers, especially challenger banks, like to buck the trend and launch market-leading offers, or hike the rate on an existing account. This may be to entice new customers and/or hit their funding targets.

Last week, Chase introduced a bonus offer giving new customers the opportunity to earn a 5% interest rate for up to one year.

Bank and building society customers may also like to be on the lookout for additional ways to boost their income, such as by banking with Nationwide and receiving its £100 Fairer Share payment, or moving provider and collecting a juicy switching bonus (you can currently grab up to £310).

In terms of the cash ISA market, savers have been rushing to pile record-breaking amounts of money into them.

“It is evident that cash ISAs are highly sought after, with the latest statistics from the Bank of England revealing a record monthly high of deposits of around £14 billion during April,” says Springall.

“The noise surrounding cash ISA reforms and the rush of savers looking to protect their hard-earned cash from tax would have been a key influence in the significant deposits. The popularity of cash ISAs is expected to linger, as millions of people are expected to pay higher-rate tax at 40% this tax year.”