The Bank of England last increased the base rate in in Q4 2017 from 0.25% to 0.50% and then again in August 2018 from 0.50% to 0.75%. Both these moves are not too dissimilar to what is currently being priced in and as a result presents us with a good data set on which we can base our insights. As the graph below highlights, there was little immediate impact on savings rates from the first Bank of England hike, both across fixed term deposits and instant access rates. Whilst there was a continued rise in fixed term deposit rates as the hiking cycle continued, instant access rates were only impacted by the second rate hike increase from 0.50% to 0.75%.
Figure 1: Average rates of fixed term deposit and instant access products on the Flagstone platform
This analysis would imply that whilst we could continue to see rate rises across fixed term deposits, there is unlikely to be an immediate impact on short term deposit rates from the hike in Q4, but we would expect further rate rises to have a greater effect on the instant access market .
Further analysis of the proportion of flows going into variable rate products rather than fixed term deposits across this time period reveals that throughout the hiking cycle clients continued to prefer shorter dated products. Given the increasing base rate environment we would expect clients to continue to prefer shorter term products. Across the Flagstone platform we continue to see a strong preference for short dated products over fixed term deposits, suggesting that clients continue to want to have easy access to their cash.
Figure 2: Top five products over the past 4 months on the Flagstone platform
Flagstone is the leading cash deposit platform in the UK, having partnered with over 50 bank and building societies. Our bank panel covers the breadth of the UK market, having high street banks such as Barclays and Nationwide on the platform but also adding value particularly to new entrants into the savings market. Given the advantages that Flagstone can offer, its scale and breadth of distribution channels, and a commercial proposition that does not charge its bank partners any additional fees, it is becoming the cash deposit platform of choice for new entrants into the UK market.
Mark Hicks, Bank Relations Director