Savings Rates Drop, While Rent Costs Keep Climbing

If you’ve been keeping an eye on your savings account lately, you might have noticed something disappointing. Interest rates on easy access accounts are slipping, and fast.

Recent analysis shows that variable savings rates have fallen to their lowest level in two years. At the same time, renters continue to face rising costs, despite a slight slowdown in rental inflation. For anyone trying to balance saving and living costs, it’s becoming a real challenge.

Savings Rates at a Two-Year Low

The average easy access savings rate has dropped from 3.11% in July last year to 2.68% today, the lowest since mid-2023. Easy access ISAs have followed the same pattern, now averaging just 2.92%, down from 3.32% a year ago.

This downward trend follows several cuts to the Bank of England base rate, which now sits at 4.25%. Despite this, almost 90% of savings accounts are paying below the base rate.

If you want your money to work harder, you need to shop around. While easy access accounts are convenient, they’re no longer competitive. Notice accounts, which require advance notice (typically 90 days) before withdrawals, currently pay around 0.94% more on average than easy access products.

Fixed-rate bonds are also making a comeback. The average one-year bond now pays 4.03%, while longer-term bonds average 3.91%. These figures represent the first increase since April. The trade-off is flexibility because you usually can’t access your money during the term, but if you don’t need immediate access, the higher rates are worth considering.

It’s also important to check for introductory bonus rates. Some providers offer attractive short-term deals to draw in new customers, but these can drop significantly after the bonus period ends, leaving you with a much lower return.

Rents Continue to Rise Despite Slowing Inflation

While savers deal with falling returns, renters are still feeling the squeeze. Recent data shows average private rents in the UK rose by 6.7% in the year to June, bringing the average monthly cost to £1,344.

Although this represents a slight slowdown from previous months, rents remain significantly higher than pre-pandemic levels. In England, the average rent is now £1,399, while in Wales it’s £804 and Scotland £999. Northern Ireland recorded an increase of 7.6%, with average rents hitting £852.

London remains the most expensive region by far, with average monthly rents of £2,252, despite inflation slowing slightly. The North East saw the highest percentage increase at 9.7%, although rents there remain the lowest in England at £734.

The imbalance between supply and demand in the rental market continues to drive up prices. The lack of available properties, combined with rising costs for landlords and regulatory changes, has deterred new investment in the sector. Without an increase in rental supply, pressure on prices is likely to persist.

What Can You Do?

For savers:

• Regularly review your accounts and compare rates.

• Consider notice accounts or fixed-term bonds if you can lock your money away for a set period.

• Watch for temporary bonus rates and note when they expire.

  
  

For renters:

• If you’re renewing your tenancy, consider negotiating where possible.

• Explore whether fixing your rent for a longer period could offer more stability.

• Stay informed on housing policies that might affect the rental market.

  
  

With savings returns falling and rents staying high, careful planning is essential.

Regularly reviewing your options can help you make the most of your money, whether you’re saving for the future or managing day-to-day living costs.

If you are unsure about taking out a mortgage, please get in touch.