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Nick Lawler looks at the opportunity within the savings market, this article was published in Mortgage Finance Gazette magazine, January 2020 edition.

Bank of England sectoral deposits data for October shows that personal deposits grew by 3.2% to £1.4tn in the year to October 2019. This growth in deposits was led by instant access accounts, which account for 54.7% of total deposits.

Set this against a backdrop of continued political and economic uncertainty, interest in savings products has intensified with competition amongst banks, building societies and challenger banks. There is little doubt that this uncertainty is affecting the savings product sector. Numerous surveys and ongoing research continue to highlight the need for savers to remain vigilant and to move savings regularly to get the most competitive rates available.

We have recently seen providers within the savings market reviewing fixed-rate products making easy-access accounts more attractive.  Subsequently, savers have been taking money out of their fixed-term accounts and transferring it to rate equivalent instant-access accounts. If providers keep this focus on the instant-access markets, fixed-rate account rates may stagnate causing more withdrawals and further reinvestment.

The size of this opportunity is huge

Looking ahead, James Blower Founder of The Savings Guru, said:

“The first quarter of 2020 will be a busy one for savings providers for three reasons. Firstly, there is circa £25 billion of fixed rate deposits maturing during the quarter. Secondly, there is a spike in January which is a legacy of the National Savings and Investments 65+ Guaranteed Growth Bonds. Known as ‘Pensioner Bonds’, these were sold as 1- and 3-Year fixed rate deposits from January 2015 and raised over £13 billion from savers. Many of these have reinvested into other savings products so this cash has remained in the sector. Finally, we have seen strong growth in deposits which don’t require notice (e.g. easy access) in 2019 and it looks like there will be around £770 billion held in these savings accounts by the start of 2020.”

While it is difficult to provide an exact monetary amount that is due to come onto market this year, it is reported that there are many billions currently held in accounts requiring notice or that are available on maturity.  A Moneyfacts market intelligence report published on 1 December showed that over 2000 fixed rate bond products will mature between January and December 2020. Considering the amount of money that is deposited in fixed rate bonds, savings providers need to be ready to act fast to maintain and grow market share.

Online distribution continues to grow

The recent Growth of Digital Banking Report by CACI highlights large shifts in the channels in which savings accounts are opened. Five years ago, 41% of savings products were taken out in branch (or via another face-to-face interaction). This has reduced to around one quarter today, with just 27% of accounts being opened in branch. Other traditional channels (telephone and post) have seen similar declines.

Today, more than half of savings accounts are opened via websites and in-app (56%, up from 39% in 2014). This digital trend is set to grow, with more than three quarters of new savings accounts expected to come from online channels by 2024. This growth is not limited to younger generations. In five years’, time, 8% of “Asset-Rich Greys” will open a saving product online – a surprisingly high proportion compared to 10% of the much younger and digitally-engaged “Starting Out” group.

Customers demand more than just a headline rate

While financial incentives and higher interest rates remain key motivations, customers are demanding a better online experience and more personalised approach. When opening new accounts or transferring maturing deposits, customers expect a personalised and frictionless journey. Increasing use of technology providing an automated application process can benefit both customer in terms of ease and time and providers with cost to serve. This digital onboarding or retention process can define the ongoing relationship the customer has with a savings institution. As well as offering a better initial experience for a customer it in turn can build loyalty, locking in profitability, client retention and future referrals.

Banking Technology should work with your retention approach

Providers need to look to their savings platform and how it supports your retention contact strategy, to ensure that opportunities aren’t missed. Fully automated and offering a seamless online experience, these platforms provide experiences that increasing numbers of customers now expect as standard.

Whilst, Brexit casts a shadow and will likely lead providers and consumers to be more cautious than they ordinarily would be, consumers will still be looking to achieve the best and safest returns on their savings pots. Institutions, offering the quickest and easiest account opening or transfer process look set for a prosperous new year.

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