Why March 2018 Could Be the Best Time of Year for Savings Rates

Timing is everything when it comes to investments and savings.

Traders are paid well to ‘buy low and sell high’ on the stock market, while savers are at the mercy of time-sensitive offers and a fluctuating base rate, which can lead to small but significant changes in interest rates.

But is there ever a ‘perfect’ time to switch, open or top up your savings account? In a word – yes! And that time is March.

March 2018 is set to be one of the most lucrative months in recent memory for savers.

Interest rates are already starting to rise, and there are a series of new incentives on the horizon which may boost savings rates even further.

Here are the three key reasons why March is the best time to save…

Its ‘ISA Season’

In the run up to the end of the tax year on 4 April, banks and building societies will be in competition mode, as they do all they can to encourage savers to use up their £20,000 annual allowance within one of their ISA vehicles.

Savvy savers can take advantage of these deals and bonus offers by either transferring their existing ISA balance into a higher-paying account, or by topping up their Cash ISA savings by as much as possible (up to the value of £20,000) to maximise the end-of-year gains on offer.

Look out for cashback offers, exclusive rates, and new subscriber bonuses, and don’t be afraid to challenge your current bank to beat a rival’s ISA package.

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The Term Funding Scheme is coming to an end

If you haven’t heard about the Term Funding Scheme, don’t worry – you aren’t the only one.

It is a short-term lending inventive that was put in place after the Brexit vote to encourage banks to borrow more money while the base rate was at an all-time low of 0.25 per cent.

And it worked! According to some estimates, British banks and building societies borrowed more than £106bn[1] through the scheme, leading to an uptick in mortgage lending in 2017[2].

However, on 28 February the Term Funding Scheme officially comes to an end, and that £106bn will have to be repaid.

This means that banks will need to bring in more cash through savings and deposit accounts, which means that they are highly incentivised to offer better interest rates.

“When the scheme closes, the appetite for retail deposits will increase, prompting more competitive rates for savers. The longer term impact will be even more significant,” said Paul Richards, chairman of Insignis Cash Solutions.

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“While we don’t expect instant access rates to improve dramatically straight away, we expect savers to be increasingly rewarded for longer terms savings products.

“It’s likely we will see a 0.25-0.5 per cent increase in longer terms savings rates over the next 12 months and potentially up to one per cent over the next 24-36 months.”

Of course, these changes are unlikely to come into effect on 1 March.

But given that banks have just four years to repay the money that they borrowed under the Term Funding Scheme, any interest rate rises are set to be introduced sooner rather than later.

The base rate may go up

Last November, the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to raise the base rate from an all-time low of 0.25 per cent to 0.5 per cent[3], and this has already translated into higher savings rates for Cash ISA customers.

In fact, according to new research from The Money Charity, Cash ISA interest rates hit their highest level since 2014 in January 2018, with the average account paying 0.91 per cent.

While this is still significantly below the then-inflation rate of 2.7 per cent[4], it is a marked improvement on the miserly rates offered by High Street banks just a few months ago. In fact, last year NatWest made headlines for all the wrong reasons when it reduced its Cash ISA rate to just 0.01 per cent[5], making it one of the lowest-paying savings rates on the market.

An increase in the base rate should encourage more banks to raise their interest rates for long-term savers, and this could happen sooner than we think.

In early February, the MPC voted to hold the base rate at 0.5 per cent for at least another month[6], but the Governor of the Bank of England, Mark Carney, added that a base rate rise would happen “somewhat earlier and by a somewhat greater extent” than previously expected.

This has led to speculation that there may be two or three separate base rate increases over the course of this year – a development which would have an immediate impact on savings rates. The next MPC meeting is scheduled to take place on 22 March 2018[7].

[1]https://www.theguardian.com/money/2018/feb/03/interest-rates-rise-february-remortgage

[2]https://www.mortgagestrategy.co.uk/residential-lending-2017-btl-cools-uk-finance/

[3]https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2017/november-2017

[4]https://www.ons.gov.uk/economy/inflationandpriceindices

[5]https://www.ft.com/content/3324e4ea-f799-11e6-bd4e-68d53499ed71

[6]https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2018/february-2018

[7]https://www.bankofengland.co.uk/news/2017/october/updated-monetary-policy-committee-dates-for-2018

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Last updated: February 28th, 2018

Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.

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