Marcus raises interest rates on savings accounts – but ‘MORE pain for savers’

Interest rates: Guidance ‘had been met’ says Ramsden

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Interest rates remain low across the board at the moment but today, Marcus, the fintech company launched by Goldman Sachs, increased rates on a number of its accounts. Marcus by Goldman Sachs has increased the underlying rate on its Online Savings Account and Cash ISA from 0.40 percent AER/gross (variable) to 0.50 percent AER/gross (variable), effective September 29, 2021.

Existing customers will have these increases applied automatically. Marcus will also continue to offer an additional 12 month fixed-rate bonus of 0.10 percent (gross) on both accounts to new and existing customers.

This is an additional rate (which lasts for 12 months) that customers can add to their underlying interest rate.

For both accounts, a minimum savings amount of £1 is applicable.

To open these accounts, savers will need to head online.

Both of these accounts also offer Financial Services Compensation Scheme (FSCS) protection. Up to £85,000 of any money held with Marcus by Goldman Sachs is protected but if a saver also has other savings or investments with Goldman Sachs International Bank (GSIB), only the first £85,000 of the total balance held across all the accounts (including a Marcus account) will be covered.

Interest rates at all time lows

Savers will likely want to take advantage of any increase they can find at the moment as today, the Bank of England also released a report on effective interest rates for August.

The report showed:

  • The average easy access rate hit a record low of 0.09 percent in August, and the average on new fixed accounts stuck at their historic low of 0.29 percent.
  • Saving levels recovered to £9.1billion. This is up from an average of £8.5billion between April and June, and above the pre-pandemic average for the year of £4.7billion. However, it’s well below the peak of £27.5billion last May.

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, examined these figures and warned savers to act so they can protect their finances, even in the face of limited options.

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Savers need to switch

“August ushered in more pain for savers, as the average easy access rate fell to a new and even more miserable low of 0.09 percent,” she said.

“Most of us are making next to nothing in miserable high street accounts, and in such a dismal savings landscape, we can’t see the point of switching.

“Our research shows that half of savers haven’t switched accounts in the past five years (49 percent), and 37 percent have never switched. The most common reason for not switching is that rates are too low to bother with. The lower rates fall, the higher this figure climbs: currently 48 percent think it’s not worth it (up from 43 percent last year).

“Ironically, it’s when rates are low that switching becomes even more essential. If you don’t plan to access the cash very often, you could get 0.65 percent from Coventry Building Society – 65 times the typical 0.01 percent available on the high street and more than seven times the average rate. If you’re prepared to tie your money up for a year you could get 1.51 percent with Gatehouse Bank, more than 150 times the typical high street easy access account.

“The most competitive accounts tend to change quickly. Many of them are from newer, smaller banks, who aren’t looking for enormous sums of cash, so you need to get in quickly while you can.If you’re not getting around to switching because it seems like too much of a hassle, then it’s worth considering a cash savings platform. These allow you to switch between accounts with different banks in a handful of clicks, and keep an eye on all your savings accounts in one place.”

Inflation to make planning harder

Unfortunately, increasing inflation is set to make life harder for savers. Recently, the Consumer Price Index (CPI) rose to 3.2 percent.

However, the Bank of England warned inflation could jump to four percent by the end of 2021.

Inflation worries are beginning to affect savers as they react to ever rising costs. Interactive investor conducted a survey of 1,150 savers between September 24 to 27.

The results showed 84 percent said they had noticed the impact of rising inflation in their day-to-day life, with 55 percent stating that it is one of the biggest threats to their personal finances.

Myron Jobson, a Personal Finance Campaigner at interactive investor, commented: “With the cost of living on the up, it is important to pay closer attention to your financial wellbeing. This may translate to doing an emergency budget, cutting down on non-essential spending and squirrelling away more money into a rainy-day fund if you can afford to do so.”

When will interest rates next be reviewed?

The Bank of England currently has the base rate set at 0.1 percent, which in turn limits what retail banks can offer.

The next review of the base rate will occur on November 4, 2021.

While the central bank has kept interest rates at all time lows for some time, recent insight from the Monetary Policy Committee showed increases may be on the horizon.

In early September, it emerged that four Bank of England policymakers wanted to raise rates, while four opted to keep them low. Andrew Bailey, the Governor of the Bank of England, was questioned by MPs on this and he confirmed his view that the thresholds to increase rates “had been met”.

Additionally, Dave Ramsden, the Deputy Governor for Markets and Banking at the Bank of England, also said: “I gave a speech in July where I sort of flagged that I thought the guidance was close to being met.

“And by the time we got to the August round, my view also was that the guidance, which [as you know] was significant progress on eliminating spare capacity and sustainable return of inflation to target, had been met. But those were always necessary rather than sufficient conditions for tightening.”

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