The March of the credit card – while high street giants drag their feet on savings

March figures show credit card borrowing was up 10.6% in a year – the fastest growth since 2006. We spent roughly half as much on cards as we did in February, but still added £800 million. Consumer credit overall was up 5.2% in a year, the biggest increase since the onset of the pandemic.

The Bank of England reported on effective interest rates for March: Effective interest rates – March 2022 | Bank of England

It also issued its money and credit report for March: Money and Credit – March 2022 | Bank of England

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “We saw the March of the credit card this year, with borrowing up 10.6% over the previous 12 months. It’s the kind of borrowing frenzy we haven’t seen since before the financial crisis, and there’s a risk that rising prices are pushing us into debt.

To put this in perspective, card borrowing is rising from a real low, and we still have less outstanding on our cards than we did before the pandemic. The rise in card spending was also far lower than in February, so we’re not seeing uncontrolled desperation in action.

Instead, this is a steady drip of increased borrowing, month after month, that tends to come alongside rising prices. Our research shows that two thirds of people have eaten through at least some of their lockdown savings, and those with nothing to fall back on may feel they have nowhere else to turn, Our research also shows that more of us are falling into debt by the end of the month, and almost one in three spend at least some time every month in the red.

Credit cards feel like a solution in the short term, but when you’re having to pay interest on your debts, it makes it even harder to make ends meet. And while prices continue to rise, stretching your money to cover your bills and your debts is going to get more difficult every month.”

High street giants dragged their feet on savings

  • Rate rises started to filter through in March, but not so you’d notice. The rate on the average new fixed-rate savings account rose 0.15 percentage points to an average of 0.92%. The average easy access rate crept up 0.02 percentage points to 0.12%.
  • This is well below the rates we saw last time the Bank of England rate was 0.75%. That was back in February 2020, when new fixed rate savings offered 1.04% and easy access 0.46%.
  • It didn’t put us off saving entirely. We deposited another £4.6 billion in banks and building societies, plus another £1.4 billion in NS&I. This is similar to the average combined total in the year before the pandemic.

“Rate rises started to filter through into savings in March, but not so you’d notice. The average easy access account offered just a quarter of the interest you could get last time the Bank of England base rate was at 0.75%.

Despite the Bank of England boosting interest rates by another 0.25 percentage points in March, the average fixed rate savings deal crept up just 0.15 percentage points to 0.92% and easy access rates rose a measly 0.02 percentage points to 0.12%. Compare this to just before the pandemic when the Bank of England base rate was also at 0.75% and you could get more than 1% on the average fixed rate savings account, and 0.46% on easy access. It means easy access accounts are offering a quarter of the rate they were last time round.

The blame lies with the high street giants, who have so much money sloshing round in their accounts that they don’t need to push up rates to attract more. It also means they can keep mortgage rates relatively low, and because their smaller competitors have to try to offer comparable mortgage rates, it has kept a lid on how much they could offer on their savings accounts too

The good news is that things have started looking a bit brighter recently, and the most competitive fixed-rate accounts over one year are now paying over 2%, as they look to build their books. The best easy access accounts have also been on the rise, with several paying well over 1%, and this week’s rate rise may well inspire more movement at the top of the best-buy tables.

However, if you’re planning to sit and wait for the high street giants to pass rate rises on, you’ll be here for some time. Some have raised rates very slightly, but only a tiny fraction of the overall Bank of England rises. Others haven’t improved their rates at all, and are still paying a miserable 0.01%. So if you want to take advantage of the rate rises, you’ll need to track down a better deal with a smaller and newer bank.”