What are key trends in the savings market this month?

Derek Sprawling, Savings Director at Paragon Bank, looks back at the month of April 

As April draws to a close, a new tax year is in full swing. With the Easter Bank holiday overlapping the end of the tax year, many savers will have found themselves with a little less time than usual to make the most of their allowances last year. Some might have missed out as a result.

Many savers will have rushed to open a Lifetime ISA before the end of the tax year and use their £4,000 allowance in time to earn the generous Government bonus – we saw a three-fold increase in enquiries in the week leading up to the end of the tax-year.

This tax year also meant a reinstated penalty of 25% following a temporarly reduction to 20% during the pandemic, which allowed savers to access their cash should they need to, while only losing the bonus opposed to any capital.

The return of the 25% penalty means that savers’ capital is once again compromised in the event of withdrawals. With the bonus value considered, a withdrawal will cost a customer roughly 6.25% of their capital – a sizeable loss.

This change highlights the importance of thoughtful consideration and planning when it comes to people choosing the right product for their specific goals. It also emphasises how key it is for savers to use a range of savings products that is diverse and fit for purpose.  

There is absolutely no doubt that the Lifetime ISA presents an invaluable resource for eligible customers who are looking to buy a first property or want to save for retirement. Many an aspiring homeowner will be familiar with the impatience of saving up for a sizeable lump sum to use as a deposit. However, a Lifetime ISA is no place for an emergency fund. 

I would encourage Lifetime ISA holders to not lose sight of the importance of a rainy day fund. This account should of course offer a level of access, and savers can earn interest on their balance by choosing a competitive product. One option to consider is an easy access ISA, which can offer savers the chance to earn a little bit extra by offering tax-free interest.

Easy access continues upwards growth

Data does suggest that many savers are indeed already prioritising saving for a rainy day. Easy account balances continued to grow steadily throughout the pandemic and that the average easy access balance has now topped a record £11,0001.  

The boost to savings during the pandemic has been well documented, with Bank of England estimating that £162 billion has been saved since the first lockdown last March2. Much of this balance growth has been made in easy- access and current accounts. This is in contrast to most other saving product categories, including fixed rate non-ISAs and all cash ISAs, which have seen growth reduce year-on-year.  

In contrast to this, the non-interest bearing market has climbed an enormous 29% year-on-year3, by far the largest segment growth across any category.  

This trend is reflective of the fact lockdown has created a nation of ‘accidental’ savers, with many finding they have additional disposable income due to reduced expenditure during the pandemic.  

While some savers will deliberately be building their emergency fund, others might be unsure of the long-term plans for any money accrued during the pandemic, and are storing it somewhere they can easily access in the meantime.  

Regardless of long-term saving goals, it’s important for people to move savings out of current accounts, where they may be earning zero interest, in order to receive at least some return. ISAs should also not be overlooked as they provide tax free income now and in the future.