Banks and building societies have already begun reacting to the brutal rate cuts announced last Monday by National Savings & Investments, with more than a dozen making reducing market-leading easy-access and short-term fixed-rate savings deals or withdrawing them from sale completely.
Some 11 savings accounts were cut in two days at the end of last week while a further five closed their doors to new customers, with rate reductions almost certain to continue into this week.
Names which frequently top This is Money’s best buy tables took the knife to their rates in the aftermath of the announced NS&I cuts which won’t come into effect until November, including Marcus, OakNorth and Paragon Bank.
Under the knife: Market-leading easy-access and fixed-rate bonds have been cut since last week
Experts told This is Money last week they feared savings rates, which had been recovering from historic lows since July, could quickly tumble with NS&I no longer around to prop up them up by absorbing billions of pounds from savers, as it has done since March.
There is also the threat of negative interest rates which could result in savings deals plunging even further, while those angered by the NS&I chop may move their money elsewhere, meaning other accounts could fill quickly.
Marcus Bank made the deepest cut to its easy-access account since it launched in September 2018, with the rate set to fall from 1.05 per cent to 0.7 per cent from 12 October, with the Goldman Sachs-backed bank blaming market conditions for the decision.
Coventry Building Society, Paragon Bank and West Bromwich Building Society are among the other providers to cut or remove from sale easy-access accounts which appeared in This is Money’s best buy tables, although Coventry’s Double Access Saver still pays a market-leading 1.1 per cent.
And the upcoming cut to NS&I’s Income Bonds, which will go from paying 1.15 per cent monthly interest to just 0.01 per cent, means providers which had to increase the rates they paid on one-year fixed-rate bonds above that to attract savers’ cash no longer have to do so.
Best buy fixed-rate bond providers have already begun cutting rates as a result.
James Blower, founder of The Savings Guru and an adviser to savings banks, said: ‘Thursday night and Friday was one of the busiest days I’ve seen’ when it came to cuts to one-year fixed-rate deals.
‘The NS&I money is starting to move already.’
The likes of Allica Bank, OakNorth, United Trust Bank and Zopa have all cut rates on their one-year fixed-rate bonds while Tandem Bank cut its one-year fixed-rate account by more than half, from 1.3 per cent to 0.6 per cent.
It previously topped This is Money’s best buy tables with a string of accounts sitting behind it paying between 1.2 per cent and 1.3 per cent.
How low can they go?
According to the Bank of England, the average rate on easy-access savings has fallen to 0.14 per cent in August – half the rate recorded in May, and the lowest since records began in 2016.
This is largely thanks to the big banks typically offering rates as little as 0.01 per cent, and this figure could be dragged down further in the wake of the NS&I cuts.
Meanwhile, rates paid on new fixed savings accounts fell to 0.5 per cent.
This is down from 1.04 per cent in February.
However, following last week’s cuts the best buy rate is now 1.26 per cent, offered by Gatehouse Bank, and no other account pays more than 1.18 per cent.
NS&I cuts are likely to lead to best buy deals being available for a much shorter length of time as banks quickly fill up with deposits from savers looking for somewhere to put their money.
Charter Savings Bank launched a one-year fixed-rate paying 1.21 per cent on deposits of £5,000 or more on Friday, but the account had already disappeared by Monday.
West Bromwich Building Society did the same with an easy-access account paying 1 per cent, while Skipton Building Society’s easy-access account launched a fortnight ago, the first to pay more than NS&I since mid-May, lasted just 48 hours before it was withdrawn from sale.
It means savers who come across a decent easy-access or short-term fixed-rate savings deal should move fast to snap it up before it disappears.
Anna Bowes, the co-founder of analysts Savings Champion, said last week ‘a huge wall of money withdrawn from NS&I’ in response to its impending cuts could see smaller banks ‘swamped with new money’, forcing them to quickly pull up the drawbridge.