Product and pricing trends in UK deposits and ISAs

Published by: Datamonitor

Published: Feb. 24, 2009 - 129 Pages

Table of Contents

Overview

Catalyst

Summary

Methodology

Executive Summary

Investors' decline in confidence has had important effects on each of the retail deposit market segments

Table of Contents

Table of figures

Table of tables

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 has grown more than twice as fast as the total S&I market

Net deposit inflows continue their rise, as do mass equity outflows

Datamonitor anticipates consistent growth in the deposits market

The ISA market continued to grow in 2007

Total ISA sales continued their slow but sustained growth

Mini ISAs dominate the ISA market and are comprised mostly of cash ISAs

Maxi ISAs will feel the economic downturn in one to two years

New ISA subscriptions are driven by mini cash and stocks and shares ISAs

Stocks and shares ISAs still lead the rise in the average value of new ISA subscriptions

The market correction will take at least two years to recover from

Tables

CHAPTER 3 PRODUCT TRENDS and segments IN UK DEPOSITS AND ISAS

Introduction

Balancing safety against returns is now top priority

The failure of Icesave fundamentally changed savers' motivations

Nationalized banks can afford to offer lower rates as they are considered safer

Foreign entrants offer better returns

Customers are keen not to tie their money up

Returns are falling drastically as the Bank of England's base interest rate is the lowest ever

Many of the best returns are offered for an initial period in order to attract customers

Product SEGMENTS

Introduction

Key findings

Ordinary savings

Ordinary savings accounts are on the increase once again

Non-tiered accounts soared within 12 months, halving the gap between tiered and non-tiered offerings to just 12%

Notice periods decreased further as customers fear being too tied down

Banks and building societies differ slightly in their distribution methods, but both favor branch-only

Interest paid on ordinary savings accounts tumbled due to the credit crunch

Cash ISAs

The growth of the cash ISA continues

The emphatic move away from longer notice accounts was a reversal of previous trends

Providers' concerns over the economy mean less fixed rate accounts

As interest rates tumbled across the board, ISA rates suffered

Distribution networks are similar for both banks and building societies, but banks have greater internet provision

Top competitors continue to tie their products together to increase their share of customers' wallets

Banks continue to offer better rates than building societies on cash ISAs, but the gap is slight

Regular savings accounts

Regular savings accounts declined by 4.8% in 2008

Building societies rid themselves of fixed rate regular savings accounts

There was a slight shift towards shorter notice periods for regular savings accounts in 2008

While regular savings interest rates have fallen, they still offer the best returns

Current accounts

Current account provision remains consistent throughout 2008

Interest rates have fallen slightly in current accounts despite being far below the base rate already

No interest current accounts are becoming more common, a trend that is set to continue

Offsetting or pooling has become far less popular

Building societies continue to embrace funding requirements over account fees

Current accounts without overdrafts still comprise an extremely small portion of the overall sector

Distribution of current accounts is geared towards ease of access

Foreign currency accounts

The number of foreign currency accounts fell over 2008

Most onshore euro current accounts continue to offer no interest rates

The failure of Kaupthing has had a negative impact on the offshore euro and dollar markets

The onshore euro accounts market sees a surprise new entrant

Ordinary savings accounts

Cash ISAs

Regular Savings Accounts

Current accounts

Foreign currency accounts

APPENDIX

Definitions

Average interest rate

Base rate/discount rate

Deposits

Investment trusts

ISAs and mini cash ISAs

OEICs

Unit trusts

Methodology

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Overview of the retail savings and investments market, 2004-08e

Table 2: Total net inflows in UK retail savings and investments by broad product line, 2003-07

Table 3: Overview of the retail savings and investments market, 2009f-2013f

Table 4: Total gross ISA sales segmented by type

Table 5: Gross mini ISA sales segmented by type

Table 6: Gross maxi ISA sales segmented by type

Table 7: Number of ISA accounts subscribed in current year segmented by type

Table 8: Average subscriptions per account

Table 9: Forecast annual ISA balances by stocks and shares and cash, 2008-12

Table 10: Market segmentation, number of accounts, January and December 2008

Table 11: Ordinary savings accounts by tiered or non-tiered, market share by number of accounts, January and December 2008

Table 12: Tiered and non-tiered accounts offered by banks and building societies, number of accounts, January and December 2008

Table 13: Ordinary savings accounts by notice period, market share by number of accounts, 1999-December 2008

Table 14: Number of ordinary savings accounts by notice period split by institution, number of accounts January and December 2008

Table 15: Distribution method for ordinary savings accounts provided by building societies, number of accounts, January and December 2008

Table 16: Distribution method for ordinary savings accounts provided by banks, number of accounts, January and December 2008

Table 17: Average interest rates on ordinary savings accounts, % gross, January 2007, January 2008 and December 2008

Table 18: Average interest rates offered on ordinary savings accounts split by institution, % gross, January and December 2008

Table 19: Cash ISA accounts by notice period, number of accounts, January and December 2008

Table 20: Fixed and variable rate cash ISA accounts split by institution, number of accounts, January and December 2008

Table 21: Average interest rate on cash ISAs, % gross, January and December 2008

Table 22: Distribution method for cash ISAs provided by building societies, number of accounts, January and December 2008

Table 23: Distribution method for cash ISAs provided by banks, number of accounts, January and December 2008

Table 24: Average interest rates offered on ordinary savings accounts split by institution, % gross, January and December 2008

Table 25: Fixed and variable rate regular savings accounts split by institution, number of accounts, January and December 2008

Table 26: Notice periods for variable rate regular savings accounts, number of accounts, January and December 2008

Table 27: Average interest rates for regular savings accounts, % gross, January and December 2008

Table 28: Average interest rates for current accounts, % gross, January and December 2008

Table 29: Average interest rates for current accounts split by institution, % gross, January and December 2008

Table 30: Distribution patterns in the current account market, number of accounts, January and December 2008

Table 31: Segments of the foreign currency market, number of accounts, January and December 2008

Table 32: Interest rates for offshore dollar and euro accounts, % gross, January and December 2008

Table 33: Notice periods for offshore dollar and euro accounts, number of accounts, January and December 2008

List of Figures

Figure 1: Overview of the retail savings and investments market, 2004-08e

Figure 2: Total net inflows in UK retail savings and investments by broad product line, 2003-07

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

Figure 4: Total gross ISA sales segmented by type

Figure 5: Table 4: Gross mini ISA sales segmented by type

Figure 6: Table 5: Gross maxi ISA sales segmented by type

Figure 7: Table 6: Number of ISA accounts subscribed in current year segmented by type

Figure 8: Table 7: Average subscriptions per account

Figure 9: Table 8: Forecast annual ISA balances by stocks and shares and cash, 2008-12

Figure 10: The market shifted back towards ordinary savings accounts between January and December 2008 (measured by number of accounts)

Figure 11: Non-tiered accounts increased in popularity, 2008

Figure 12: Banks' non-tiered accounts outnumbered tiered accounts by December 2008

Figure 13: Longer notice periods continue to become less common, extending this trend to nine years

Figure 14: Instant and no-notice accounts increased for banks and building societies alike

Figure 15: Banks have seen a large increase in branch-only, and it remains the method of choice for building societies

Figure 16: Average interest rates on ordinary savings accounts fall to a level below January 2007

Figure 17: Banks and building societies interest rates both plummet

Figure 18: There has been a large shift towards shorter notice accounts

Figure 19: Fixed rate accounts fell due to fears over the economy

Figure 20: Average interest rates, ISAs

Figure 21: Both building societies and banks favor branch-only, but banks provide more online services

Figure 22: ISA interest rates banks vs. building societies

Figure 23: Building societies reduced their fixed rate account provision

Figure 24: Regular savings accounts shifted slightly towards shorter notice periods

Figure 25: Average Interest rates remain considerably higher for fixed rate accounts

Figure 26: Interest rates have remained constant compared to the massive fall in the Bank of England base rate

Figure 27: Building societies rates have dropped substantially but remain higher than those offered at banks

Figure 28: The vast majority of accounts are accessible in multiple ways

Figure 29: Offshore accounts dominated the foreign currency market

Figure 30: The average rate of return on $100,000 or €100,000 has plummeted

Figure 31: Kaupthing's collapse had a direct effect on the shift towards shorter notice periods in the overseas dollar and euro markets

Abstract

• Covers the UK retail deposits market, including forecasts to 2012 for ISAs and to 2013 for deposits
• Analyzes Ordinary savings accounts, Regular savings accounts, ISAs, Current accounts with / without overdrafts and Foreign currency accounts
• Assesses interest rates, product features, market size and share
• Includes January 2007, January 2008 and December 2008 Moneyfacts data

• Develop a comprehensive understanding of product features and pricing strategies in the retail deposit sector
• Understand the future for the UK deposits and ISAs market, including the effect of the current economic downturn
• Benchmark your bank against the market in terms of product range and pricing features

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