- 40% increase in new fixed term deposits compared to a year ago
- Savers are locking in for short-term fixes to take advantage of highest rates in a decade
- Despite record rates, they are expected to keep rising
- HL Active Savings offers 9-month fixed rates at 2.56% and 1 year at 3.35%
Savers Take Advantage Of High Interest Rates
We’re seeing considerably more clients using fixed term deposits over easy access. Up to 80% of all new flows are heading into fixed term deposits, up from around 50% a year ago.
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People are cashing on fixed terms because the rates are higher than they’ve been for a decade or more. Even people who were holding off fixing previously are seeing rates have reached a point they are prepared to fix at for a short period, allowing them to fix for a potentially higher rate later.
Rates longer than 2 years are less popular at the moment as people are anticipating interest rates to continue to rise and will do so until inflation starts to fall and the Bank of England changes it’s narrative around future guidance for monetary policy.
Falling petrol prices helped inflation back below 10% in August, but the prices of much of the rest of the basket of goods that makes up CPI are still rising. As such, the market is still expecting the MPC to hike rates by 0.5% on Thursday. Some of the MPC participants are expected to vote for an even larger hike of 0.75%.
There’s plenty of breadth at the top of the fixed term tables, so we expect fixed term rates to continue to grind higher from here.
Many banks will be front running rate hike expectations, so do not expect an aggressive jump in rates unless the BoE shocks the market with an unexpected move. Following the rate hikes we will see increases in easy access rates, but banks will likely move fairly slowly to pass on rate rises.
How HL Active Savings Works
Launched in 2018, Hargreaves Lansdown’s Active Savings is an online cash savings platform which provides a solution for the 49% of people who haven’t moved their savings in the past 5 years, and the 37% who’ve never switched**.
Through one single application, savers can move money between accounts with different banks and building societies in just a few clicks, removing the need to ever complete another application.
Active Savings means all cash can be kept in one place, and makes it much simpler for savers to choose another product when their fixed-rate comes to an end.
Hargreaves Lansdown chooses to partner with banks that only offer consistently good rates, rather than banks offering a high introductory rate which drops to a much lower rate after a short period of time.
We do not charge clients for using the Active Savings Platform, instead Hargreaves Lansdown charges the account providers that we partner with a percentage of balances held with them.
**Opinium survey for Hargreaves Lansdown in October 2020.
Article by Tom Higham, Acting Head of Savings at Hargreaves Lansdown
