UK savers are more than £1,000 better off than they were at the start of the pandemic

The typical UK saver is £1,000 better off than they were prior to the pandemic, but they are more likely to stash their cash in a low-interest easy-access account. 

The average savings balance has risen from £11,141 in March 2020 to £12,145, according to CACI data analysed by Paragon Bank.

The savings data, captured from more than 30 banks and building societies, shows total savings having grown by 8.3 per cent since the pandemic started, climbing from £903billion to £978billion.

But Britons appear to be pouring their lockdown savings into easy access accounts rather than higher-paying fixed rate deals.

The average easy access balance has grown by £1,450 since the pandemic began from £10,246 to £11,696. 

Money in these accounts is collectively worth £593 billion, meaning that more than 60 per cent of Britain’s savings is stashed away in them.

It is thought that the trend has largely been driven by the uncertainty caused by the pandemic.

As their name suggests, savers can take their money out of an easy-access account whenever they like, without a penalty. 

However, they pay much lower interest. The best-buy easy access rate is currently 0.65 per cent, but by putting their savings away in a fixed-rate account for just one year a saver could earn more than double that at 1.45 per cent.  

James Blower, founder of consultancy the Savings Guru said: ‘We are seeing more money in easy access accounts – largely driven by Covid.

‘Firstly by people having extra savings because of lockdowns – saving on travel costs, holidays, not being able to go out etc. 

‘These people aren’t sure what to do with their spare cash, so are leaving in easy access until they are.

‘Secondly, this trend has been caused by the uncertainty Covid has created which means people who can are keeping more of a buffer for future in case there are more disruptions.’

Another savings product that Britons appear to have flocked to during the pandemic is regular saver accounts, with total balances rising by almost 38 per cent from £11.8billion to £16.3billion since Covid restrictions began.

Regular saver accounts enable savers to save a fixed amount every month, albeit typically with a minimum or maximum limit on how much can be deposited each time.

For example, the market leading deal offered by Cambridge Building Society pays 5 per cent interest on its extra reward regular saver account, but limits monthly deposits to £250 with a maximum balance of £3,000. 

Customers will also need to have another product with the building society to be eligible.

Instant-access cash Isas have also remained popular since the pandemic began, with the amount saved in these accounts rising from £176billion to £187billion.

However, whilst easy access deals have boomed, many savers appear to have given the fixed rate savings market somewhat of a wide berth.

Fixed-rate deals have seen an exodus of cash, with total savings in these accounts having fallen by 21 per cent from almost £98billion to almost £73billion since the pandemic began. 

Fixed-term Isa products, which also offer better interest to those willing to lock away their cash for a set period, have followed a similar pattern. 

The balance held in these fell from roughly £87billion in March 2020 to £78billion as of July this year.

Despite the easy access craze, industry experts suggest the trend could be reversing back towards fixed rate deals now that rates have improved and the worst of the lockdowns appear to be behind us.

‘We saw best-buy easy access rates fall to 0.40 per cent in March, with one-year fixes at just 0.56 per cent,’ said Blower. 

‘This gave very little incentive for savers to tie up their money.

‘Now that differential is 0.65 per cent compared to 1.45 per cent, so there’s an attraction to lock away for savers.

‘As a result, what I am seeing in the market is more money moving to fixed rate savings. One-year fixed rates were the most-searched-for product on Savings Guru in September, and in October so far too.

‘I think this trend of money moving back to fixed rates will continue ,and we will also see more of those lockdown savings balances being spent too – so I think easy-access balances have probably reached their high point.’

Easy access versus fixed rate deals

The best paying easy-access deal currently available is via the Family Building Society, paying 0.65 per cent, although savers have only until 5 November to add money to this account.

Digital savings platform Chip is also offering an even better 0.70 per cent rate via Allica Bank, though customers will need to sign up to the service and pay the membership fee of £1.50 per month to access it. 

This rate offered exclusively to Chip customers and through this link via This is Money, comes with Financial Services Compensation Scheme protection of up to £85,000 per person and allows savers to deposit a maximum of £30,000 into the account.

You can find out whether this might be right for you by reading our review of Chip’s exclusive deal here.

The savings platform, Raisin, is also offering a £50 welcome bonus to any new customer who puts £10,000 or more into a savings account.

Although its best easy-access account pays 0.45 per cent, the addition of the welcome bonus means that someone stashing away £10,000 could earn £95 in the first year – an effective return of 0.95 per cent, superior to the Chip rate.

Unlike with Chip, Raisin charges no account fees for its service, so savers returns won’t be eroded by a monthly charge.

However, for savers prepared to lock their money away for a year or more, the potential returns are higher.

The leading one year fixed rate deal, via Al Rayan Bank, currently pays 1.45 per cent, although savers will need a minimum deposit of £5,000 to get started.

The Birmingham-based bank is Sharia-compliant, which means it cannot offer customers guaranteed interest. Instead it offers an expected profit rate from accounts.

These types of accounts have become more mainstream and often appear in This is Money’s independently compiled best-buy tables.

Al Rayan Bank is also offering the best two and three year fixed rate deal, paying 1.76 per cent and 1.81 per cent respectively.

Given the higher rates on offer via fixed-rate deals, savers comfortable with locking their money away for a fixed period of time are encouraged to consider these accounts.

This is especially true given the forecast increase in the Bank of England’s base rate early next year, which could drive up rates further.  

Derek Sprawling, savings director at Paragon Bank said: ‘Our tip for savers would be to not overlook fixed rates, especially now that providers are building in the expectation of an increased base rate.

‘The market is forward looking and rates available in the best-buy tables are no longer reflective of the current base rate.

‘It’s important for savers to make the most of competitive rates while they are available as it’s possible the market will remain volatile in the upcoming months.’

James Blower also believes it’s worth fixing for a year to secure a better return on your money.

However, he suggests not fixing for longer than a year in case interest rates begin to rise.

‘I think savings rates are likely to be stable for the next few months but everything else in the economy points to rates improving in 2022,’ said Blower.

‘My advice to savers is that fixed rates are attractive enough to tie in, compared to easy access, for those that can lock their money away, but don’t fix beyond one year.’