Just 26% of savings accounts are paying more than the Bank of England base rate, according to data from Moneyfacts Group, with the Moneyfacts Average Savings Rate falling to 3.46% in September, down from 3.5% a month ago.
The percentage of accounts able to beat the Bank rate is up from last month, when just 10% paid more than the 4.25% interest rate. However, despite the UK central bank cutting rates by 25 basis points to 4% last month, this only increased to one in four.
It comes at a time when the Bank of England has warned it expects inflation to remain elevated, with the consumer prices index (CPI) forecast to rise to 4% between now and the end of the year.
Rachel Springall, finance expert at Moneyfacts, said: “Savers may have assumed that with the Bank of England base rate falling, there would be a bigger impact on the pool of deals able to beat it, but that’s not true.”
Additionally, as inflation is expected to climb higher in the coming months, current rates mean the “vast majority of savers” will see their pots eroded in real terms.
“This will be incredibly demoralising for savers who use their interest to supplement their income,” she said.
However, this is not a new phenomenon, with Springall noting that the situation in the savings market has been “dire for many years”. Indeed, the last time the average savings rate was higher than 4% was January 2024.
“Savers would need to cast their eyes back to the start of August 2022 to find the last time that more than half of the savings market could beat the base rate, when 56% could do so, but the rate to beat was just 1.25%. The rate of inflation back then was abysmal, as it rose to double digits, so it was a terrible situation for saver,” said Springall.
Interest rate cuts are bad for savers and the past few months have been no exception. The average easy access rate has dropped to 2.59%, as the below table shows. Easy-access cash ISA rates are slightly higher at 2.82%.
Variable savings rates are now at their lowest levels for two years, the data shows, while most are now more than 1 percentage point lower than they were a year ago.
For a one-year fixed bond, the average rate is 3.96%, or 3.91% if held in an ISA. Longer-dated bonds pay less on average, at 3.89% and 3.83% respectively.
It was not all bad news, however. Savers now have more choice than ever before, with the number of options rising to 2,289, while cash ISA choice also hit a new record high with 662 deals. The number of savings providers rose to 155, another record.
Springall said savers may wish to use this time to lock in their cash for longer, either through a fixed bond or a cash ISA – something that many are already taking advantage of.
Savers are already showing their keenness for longer-dated products, according to the Bank of England, with money flowing into “interest-bearing time deposits” tripling in July to £4.3bn, up from £1.2bn the month prior.
Springall said: “Those who have yet to utilise their ISA allowance would be wise to do so, especially if savers fear a cut to the allowance could be announced in the Budget, so savers will no doubt want to maximise their deposits in the meantime.
“Locking into a guaranteed return with a fixed bond amid tumbling variable rates is wise, but savers must be aware of their Personal Savings Allowance (PSA), which in itself, could be reviewed or abolished in the future by the government.”
Although the average longer-dated bond is paying less than the average one-year options, the highest overall rates are for five-year bonds.
Using a £20,000 lump sum, Chetwood Bank, available through investment platform Hargreaves Lansdown, is paying out 4.35% per year – 10 basis points ahead of the second-highest rate and almost a full 0.5 percentage points ahead of the average. The provider also offers the best one-year rate at 4.32%.
Outside of ISAs, the top five-year fixed-rate bond is provided by JN Bank, paying a slightly higher 4.52%. This is followed by Chetwood Bank at 4.5%, with RCI Bank (4.35%) in third place.