Deposit and Savings Accounts - UK - April 2013
“The Funding for Lending Scheme has so far been detrimental to savers. It has made banks less reliant on depositors’ money to fund borrowing, removing the incentive to offer really competitive savings rates.”
– Sarah Hitchcock, Senior Analyst – Financial Services
Some questions answered in this report include:
- Is competition increasing the savings market?
- What types of savings accounts are consumers favouring?
- How frequently are they saving?
- Do consumers trust savings providers to look after their money?
The UK retail savings market is mature, stable and dominated by a handful of players, comprising the retail brands of the major British banking groups and the largest building society. Despite the comparatively low returns on offer, particularly on instant-access accounts (the most popular kind), as well as ongoing pressure on household budgets, retail deposit balances grew by 5% in 2012. This was an improvement on both 2011 and 2010, when the annual growth rate was just under 3%.
Even so, the value of retail savings has increased at a much slower rate since 2008 than in the five years prior to the financial crisis and, with the exception of 2012, has failed to keep pace with CPI inflation. Moreover, a very low base rate and low LIBOR have fed through to mortgage and loan rates (favouring borrowers), but have also depressed savings rates (disadvantaging savers). Exacerbating the situation further, the introduction of the Funding for Lending Scheme in the summer of 2012 has recently reduced competition in the deposit and savings account market and put yet further downward pressure on the interest earned on cash.
This report examines these trends in detail and examines their implications for both providers and consumers. Drawing on a range of information sources and trade research, it provides a comprehensive overview of the size and composition of the market, as well as recent provider activity. In addition, it explores consumer saving behaviour and provides insight into the attitudes and intentions of savers, by analysing the results of Mintel’s independently commissioned online consumer survey.
There are various types of deposit and savings account available to UK consumers, which typically will be managed in-branch and/or online. The main ones are as follows:
- easy-access (or instant-access) savings account – the most widely available and commonly held, this type of account does not impose any restrictions on making withdrawals and provides either a variable interest rate or a fixed/guaranteed interest rate for an introductory period
- notice account – this is where the account holder must give a certain number of days’ notice before making a withdrawal so as not to lose any interest
- fixed-term/fixed-rate savings account or bond – offers a fixed rate for a fixed term, usually between one and five years
- regular savings account – where the account holder is required to make regular monthly payments (usually ranging from £25 to £250 or £500 a month) in return for a higher interest rate
- offshore savings account – this is where the account is set up and run by a bank, or a bank’s subsidiary, based outside of the UK, usually in the Channel Islands, the Isle of Man or Ireland. Offshore
- accounts can offer certain tax benefits and multi-currency options, but they are not covered by the UK’s Financial Services Compensation Scheme (FSCS).
In the UK the main providers of savings accounts are the high street retail banks and building societies, although others include direct- and online-only banks, investment and private banks, retailers and the Post Office.
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