Savers in the UK are in for a “shock” as banks and building societies have made the biggest cut to interest rates in 15 years, according to new analysis. The era of high interest savings products may soon be coming to an end, data from Moneyfactscompare suggests.
From December 2023 to January 2024, the average easy access rate fell for a consecutive month to 3.15 per cent. In comparison, the average notice savings interest rate fell to 4.38 per cent which is the first month-on-month fall since February 2022.
Banks are starting to cut savings interest rates
Over the same period, the average easy access ISA rate dropped month-on-month to 3.25 per cent. The average rate of a notice ISA plummeted to 4.18 per cent.
The average one-year fixed bond fell for a third consecutive month to 4.87 per cent, the first time it has dipped below five per cent since July 2023, and the biggest month-on-month fall since February 2009.
At the same time, the average longer-term fixed bond decreased for a fourth consecutive month to 4.46 per cent, seeing its biggest month-on-month fall since February 2009.
Furthermore, the average one-year fixed ISA slumped for a consecutive month to 4.72 per cent, the biggest month-on-month fall since March 2009.
Finally, the average longer-term fixed ISA rate fell for a consecutive month to 4.32 per cent, representing its biggest month-on-month fall since March 2009. Overall, savings product choice dropped month-on-month to 1,799 savings deals which include ISAs.
Rachel Springall, a finance expert at Moneyfacts, warned the recent “significant cuts” to fixed rate bond and fixed rate ISA accounts are the largest recorded in nearly 15 years.
She explained: “This will no doubt come as a shock for savers who use these accounts to earn a guaranteed return on their hard-earned cash and have waited a couple of months to invest.
“However, despite these falls, it is worth noting that average rates are higher than they were at the start of 2023, so many coming off a fixed rate will find better returns today if they want to lock into a deal of a similar term.
“Longer-term fixed rates are currently returning less than one-year options on average, but with interest rates expected to fall this year, some savers may decide to fix for longer.”
British savers have benefited from the Bank of England’s decision to raise the base rate in its battle against inflation.
As inflation has eased, despite a rise to four per cent last month, the central bank has kept interest rates at 5.25 per cent in recent months.
Analysts are forecasting the Bank will cut the base rate in the later half of 2024 which banks and building societies are already pricing in.