Product and Pricing Trends in UK deposits and ISAs

Published by: Datamonitor

Published: Aug. 16, 2007 - 84 Pages

Table of Contents

EXECUTIVE SUMMARY

Introduction

Market context

Product trends in UK deposits and ISAs

Product segments

CHAPTER 1 INTRODUCTION

What is this report about?

Who is the target reader?

How to use this report

CHAPTER 2 MARKET CONTEXT

Introduction

The deposits market still represents almost half the total UK retail savings and investments market

Net deposits inflows bounced back in 2006 while inflows into direct equity declined

Datamonitor anticipates consistent growth in the deposits market over the next five years

The ISA market continues to go from strength to strength

Total ISA sales continue to grow albeit at a slower rate than in 2005

Mini ISAs remain the key component of the ISA market, with cash ISAs the most popular form of Mini ISA

Almost all sales of Maxi ISAs are in the form of stocks and shares

New ISA subscriptions have consistently risen from a low in 2003

The average value of new ISA subscriptions continues to rise with Maxi ISA and stocks and shares Mini ISAs rising fastest

A market correction during the next five years is expected to signficantly affect ISA sales growth

Data tables

CHAPTER 3 PRODUCT TRENDS IN UK DEPOSITS AND ISAS

Introduction

Key findings

The product segments continue to slowly diversify but ordinary savings accounts still comprise over half the market

Ordinary savings account numbers are declining but the segment is not necessarily easier for consumers to navigate

Regular savings accounts continue to grow in popularity among providers

In the foreign currency segment, offshore USD accounts are growing, threatening the dominance of offshore Euro accounts

Current accounts with an overdraft continue to outstrip those without

Product providers are taking notice of the changing demands of consumers in terms of distribution channels

No notice or instant access accounts make up the majority of all ordinary savings accounts

Sight deposits are increasingly popular with consumers as time deposits fall out of favor and cash ISAs see significant growth

Direct banking's popularity has waned slightly over the year in terms of the number of accounts offered

Online savers have access to better rates and are able to make lower initial deposits

Building societies are achieving greater parity with banks in terms of product range diversity

More top competitors are tying products together to increase their share of their customers' wallet

Offsetting or pooling savings is set to become more prevalent

Pricing has become more cutthroat as providers up the competition for new business

Increased competition and consumer demand may turn the tide against complex pricing

Data tables

CHAPTER 4 PRODUCT SEGMENTS

Introduction

Key findings

Ordinary savings accounts are declining but still dominant in the savings and deposits market

Notice periods continue to come down in ordinary savings accounts

Tiered pricing is still prevalent among building society accounts but banks are simplifying pricing structures

Pricing schemes aim to retain existing customers and partition the client base

Bonuses are key to retaining existing customers

Providers are offering a range of differently priced accounts with graduated minimum balance thresholds

The average interest rate offered on ordinary savings accounts has risen over the past year

The popularity of different distribution methods varies between banks and building societies while also affecting pricing levels

Newer distribution strategies offer the most competitive pricing to customers

Branch only distribution remains strong despite small increases in the number of direct access accounts

The number of regular savings accounts grew by 11% between February 2006 and January 2007

Building societies are strengthening their control over regular savings accounts

Three of the four new entrants to the market in 2006 were building societies

Building society regular savings accounts cater to either end of the notice period spectrum, while banks tend to offer mid-range notice periods

There is a signficant difference between banks and building societies in the pricing of regular savings accounts

Fixed rates' popularity has stalled over the past year but continue to offer eye-catching rates

Mini cash ISAs remain in high demand

Mini cash ISAs are slowly moving towards longer notice accounts, while also maintaining a trend for no-notice accounts

Banks are more likely to offer Mini cash ISAs with no notice period

Fixed rates are becoming more common but are strongly tied to long term Mini cash ISAs

Interest rates are not keeping pace with the base rate but gradually improve with increased investment

Distribution is focused on the branch network, but banks offer a wide range of access options

Current accounts with overdrafts remain the key sub segment of the current account market

Current accounts with overdrafts are seeing some changes to product features

Interest rates vary widely and rarely reflect the Bank of England base rate

Funding requirements are particularly common among building societies although banks have embraced account fees

Building societies are creeping into this segment

Non-overdraft current accounts are aimed at niche markets

There is a broad range of distribution options available for current accounts with an overdraft

The intended immediacy of current accounts is emphasized by the relative popularity of telephone and internet banking

Several varieties of foreign currency account are available but these vary signficantly in popularity

Clearly tiered interest rates reward serious savers while offshore rates beat onshore equivalents

Onshore Euro current accounts are unlikely to offer interest rates

Similar distribution of notice periods in the offshore accounts reflect the similarity of the offerings in each market

Data tables - ordinary savings accounts

Data tables - regular savings accounts

Data tables - Mini cash ISAs

Data tables - Current accounts

Data tables - Foreign currency accounts

CHAPTER 5 APPENDIX

Definitions

Average interest rate

Base rate / discount rate

Deposits

Investment trusts

ISAs and Mini cash ISAs

OEICs

Unit trusts

Research methodology

Further reading

Datamonitor Savings & Investments SPP Reports

SPP writing team

List of Tables

Table 1: UK retail deposits and savings, 2002-2006

Table 2: Net inflows into UK retail deposits and savings, 2002-2006

Table 3: Forecast UK retail deposits and savings, 2007-2011

Table 4: Gross ISA sales in the UK, 2002-2006 (GBPm)

Table 5: Gross Mini ISA sales in the UK, 2002-2006 (GBPm)

Table 6: Gross Maxi ISA sales in the UK, 2002-2006 (GBPm)

Table 7: Number of new ISA accounts opened in the UK by account type, 2002 - 2006

Table 8: Average value per subscription of selected ISA types, 2002 - 2006

Table 9: Forecast annual ISA balances by stocks and shares and cash, 2007 - 2011

Table 10: Market segmentation by number of accounts, 2006 and 2007

Table 11: Notice period by type of institution, with comparison to 2004 total data

Table 12: Total UK personal deposit balances by holding institution and type, 2001 - 2005

Table 13: Proportion of ordinary savings accounts operating by each method

Table 14: Average number of accounts offered by banks and building societies, January 2007

Table 15: Ordinary savings accounts by notice period, Feb 1999-Jan 2007

Table 16: Tiered and non-tiered interest rates on ordinary savings accounts split by institution, January 2007 and February 2006

Table 17: Average interest rates paid on ordinary savings accounts in February 2006 and January 2007, by level of investment

Table 18: Average interest rate paid on ordinary savings accounts, January 2007, segmented by distribution strategy

Table 19: Distribution channels of ordinary savings accounts, February 2006 and January 2007

Table 20: Regular savings accounts split by provider type

Table 21: Notice period of regular savings accounts by provider type, January 2007

Table 22: Average interest rate paid on regular savings accounts, by notice period, January 2007

Table 23: Mini cash ISA accounts by notice period, January 2007

Table 24: Mini cash ISA accounts by notice period and distributor, January 2007

Table 25: Interest rates offered in Mini cash ISAs by tier and distributor, January 2007, including comparative Bank of England base rate

Table 26: Proportion of accounts by distribution method and distributor, January 2007

Table 27: Interest rates paid on current accounts by level of investment and distributor, January 2007

Table 28: Proportion of current accounts with overdraft by distribution method and distributor, January 2007

Table 29: Foreign currency account market size, January 2007

Table 30: Interest rates available on foreign currency savings accounts by investment tier and denomination of account, January 2007

Table 31: Foreign currency accounts by notice period, January 2007

List of Figures

Figure 1: Deposits continued to show good growth relative to the rest of the UK S&I market between 2002 and 2006

Figure 2: Net inflows for deposits remained strong in 2006 while

Figure 3: The deposits market is forecast to grow significantly over the next five years

Figure 4: Total sales of ISAs continued to rise in 2006 although growth has slowed since 2005

Figure 5: Cash ISAs continue to be the most popular form of Mini ISA

Figure 6: Stocks and shares traditionally account for the vast majority of Maxi ISA sales

Figure 7: The total number of new ISA subscriptions has risen steadily since 2003

Figure 8: The average value of all forms of ISA subscription has risen between 2002 and 2006

Figure 9: ISA balances will have mixed fortunes over the next five years

Figure 10: The market continues to slowly shift away from ordinary savings accounts between 2006 and 2007

Figure 11: Longer notice periods for ordinary savings accounts are becoming less common, particularly among banks

Figure 12: Sight deposits with banks alone now account for almost half the UK deposits market value

Figure 13: Between February 2006 and January 2007, the number of accounts operated online and by telephone decreased slightly

Figure 14: Building societies had a larger number of available accounts than banks in January 2007

Figure 15: There has been a continuous shift towards shorter notice periods over the past eight years

Figure 16: The number of non-tiered accounts among banks have risen between 2006 and 2007, while among building societies tiered accounts have gained ground

Figure 17: Average interest rates on ordinary savings accounts grew significantly between February 2006 and January 2007

Figure 18: The distribution channels used have a significant impact on the pricing of ordinary savings accounts

Figure 19: The proportion of branch-only ordinary savings accounts grew slightly between February 2006 and January 2007

Figure 20: Building societies have taken an additional 2.2% of the total regular savings account market between February 2006 and January 2007

Figure 21: Instant access is the most popular form of regular savings account among both banks and building societies in 2007

Figure 22: Pricing on regular savings accounts varies considerably depending on the notice period on the account

Figure 23: Instant access and no notice ISAs have declined slightly this year while notice periods of a year or more have risen

Figure 24: Banks offer significantly more Mini cash ISAs without a notice period than building societies

Figure 25: Building society interest rates tend to be set slightly higher than those of banks although both on average are lower than the Bank of England base rate

Figure 26: Branch access to Mini cash ISAs remains dominant

Figure 27: Current account interest rates do not reflect the base rate and do not reward high balances

Figure 28: Banks still form the majority of providers and offer the largest proportion of current accounts in January 2007

Figure 29: Current accounts with overdrafts offer a wide range of access methods

Figure 30: The offshore sub segment was far larger than the onshore foreign currency account market in January 2007

Figure 31: Offshore USD accounts offer the highest interest rates among offshore foreign currency savings accounts

Figure 32: The proportion of no notice accounts is higher among offshore accounts than onshore Euro accounts

Abstract

• Analysis of Ordinary savings accounts, Regular savings accounts, ISAs, Current accounts with / without overdrafts and Foreign currency accounts
• Analysis of deposit account and ISA interest rates, product features, market size and share and is based on an extensive analysis of Moneyfacts data
• Includes data up to January 2007 with comparisons to February 2006

• Develop a comprehensive understanding of product features and pricing strategies in the retail deposit sector
• Benchmark your bank against its competitors in terms of product range and market share
• Learn about potential corrective action measures and strategies to take market share from your competitors

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