Retail Savings in the UK - Key Trends and Opportunities to 2019 - New Report Available

Interest rates on all savings accounts are at record-lows in the UK and are failing to entice customers despite improving economic conditions. Growth has been slow across all savings accounts, apart from ISAs, which have seen growth due to the upper limits being raised every year since 2010, not because of attractive interest rates.

The central bank rate remaining so low has meant that banks have had access to extremely cheap funds and therefore have not needed to compete for savings accounts from consumers. This in turn has made borrowing from banks cheaper, meaning taking on debt for high-value purchases or moving house has been cheaper throughout the review period, so investing and paying off debt has been more appealing than stashing cash away in savings accounts
Average pay, including bonuses, increased by 3.0% in May to July 2015, compared to the same period in the previous year, which marked the largest rise in six years. This, combined with record ow inflation - hasn't been above 0.1% since January 2015, and dropped back to -0.1% in September 2015 - means that real wages have grown substantially throughout 2015, something not seen since before the financial crash. Furthermore, UK unemployment fell to a seven-year low of 5.4% in the three months to August, with 79,000 more people in work than the previous quarter.

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Despite more people being in work, and those in work seeing growth in real wages, people are saving a smaller percentage of their wage than at any time since 2008. People generally became very wary of debt in the immediate aftermath of the financial crash, which encouraged saving and saw the saving rate rise to 11.4%. A recent surge in consumer confidence though, has largely seen people lose that fear, as the rate plummeted to 4.6%, with people looking towards spending more - spending on hotels and restaurants was up 8% in 2015 up to October, for example - or paying off debt with higher interest rates than savings accounts can offer.

The extremely uncompetitive savings account market, in terms of interest rates, has clearly been a factor in the savings rate, as consumers haven't been tempted to lock money away.

Two million customers have switched current account providers in the two years since the Payments Council Current Account Switch Service for individuals, small companies and charities was introduced to make the process easier. The scheme is also known as the 7-day switch aimed to promote competition in the market and allow consumers more choice.

This suggests that despite record-low savings rates being offered in a very uncompetitive market, banks can still attract customers on mass with a relatively good offer. Santander has been a perfect example of this in 2015, who despite charging GBP2.0 per month for its 123 account, has attracted 98,400 new customers this year due to a more competitive interest rates and cashback on household bills.



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