UK Savings 2016: Forecasts and Future Opportunities
Summary
Low returns on balances and wages that are under pressure from inflation have made it difficult for UK consumers to grow their savings in recent years. At the same time, a recovery in consumer confidence has prompted a declining propensity to save. Retail deposits are predicted to rise at a CAGR of 4%, to reach £1,484bn by 2019, compared to 8% during 2000-07. Banks will have to use new strategies if they want to significantly grow this source of funding.
Key Findings
- Personal deposits are expected to make a sluggish recovery as the economic outlook remains fragile. The rate advantages offered by fixed-term accounts are steadily falling, making long-term saving less attractive to consumers. However, despite the headwinds providers are helping consumers to save as they look to build a buffer against an uncertain financial future.
- The entry of new challenger banks has induced competition in the savings market. Mobile is increasingly becoming a key channel for retail financial services, either via apps or new secure mobile-optimized sites. Providers must concentrate their efforts to develop mobile-channel capabilities to attract savers’ cash.
- Banks should take steps to build rewards based on consumers’ motivations. By giving customers the ability to set goal-based savings targets, banks will be able to better engage with them. For example, in cases where customers have stated that they are saving for a holiday, providers should offer deals on travel insurance and foreign exchange as they close in on their goal.
Understand the developments shaping the UK retail savings market.Inform your future plans with our five-year forecast for retail deposits.
- What are the factors that will affect the savings market in 2016 and beyond?
- Which strategies will be most effective in attracting new retail deposits?
- Which new savings innovations are being introduced to the market?
- How much of an impact will regulatory developments have on the operation of the UK savings market?
- How will consumers' desire to increase their savings interact with a challenging economic climate?
- How will the latest consumer behavioral trends affect the products demanded in the retail savings market?
- How can financial services providers acquire new deposit customers?
- EXECUTIVE SUMMARY
- The retail savings market continues to grow slowly
- Critical success factors
- RETAIL SAVINGS GROWTH IS SLOWING BUT WILL REMAIN POSITIVE
- Deposit accounts are expected to remain the UK's preferred asset class for saving
- Increasing consumer confidence levels are reducing consumers' need to save
- Declining wage growth and a stagnant unemployment rate will restrict savings growth
- Diminishing interest rate differentials between instant-access and fixed-term accounts are acting as a disincentive
- New regulations are aiming to change the UK savings landscape
- The Personal Savings Allowance will boost the savings market
- The FCA has announced new rules to encourage competition and give customers a better deal
- PROVIDERS ARE REACTING TO THE MARKET CHANGES
- Lloyds Banking Group retains its dominance in the UK retail savings market
- Challenger banks are competing on price
- Providers are harnessing mobile capabilities to attract savers
- Santander's ISA app helps consumers be more proactive about saving
- Dyme aims to encourage millennials to save more
- Moven uses gamification to incentivize saving
- Lloyds Bank's Swave app encourages consumers to save little and often
- Personal financial management apps can help drive savings behavior
- HSBC's Nudge app helps users save money and be more aware of their spending habits
- FAMILIARITY AND CONVENIENCE WILL HELP DRIVE SAVINGS
- Consumers prefer instant access over fixed-term accounts
- Familiarity and convenience are drivers of provider choice
- Harness consumers' personal goals to encourage saving
- APPENDIX
- Abbreviations and acronyms
- Definitions
- Savings ratio
- Methodology
- Verdict Financial's 2015 Retail Banking Insight Survey
- Bibliography
- Further reading
- About Verdict Financial
- Disclaimer
- List of Figures
- Figure 1: Retail deposits account for half of retail savings and investments in the UK
- Figure 2: Retail deposits will experience sluggish growth up to 2019
- Figure 3: Growing consumer confidence has reduced consumers' desire to save
- Figure 4: With no significant pick-up in earnings, consumers' capacity to save is expected to reduce
- Figure 5: Interest rates on savings accounts continue to fall
- Figure 6: The new personal savings allowance will positively impact the UK savings market
- Figure 7: Savers have suffered in recent years with a continual rate reduction on cash ISAs
- Figure 8: The lowest interest rates offered by 32 providers of easy-access cash savings accounts
- Figure 9: Lloyds Banking Group holds a quarter of all retail deposit balances in the UK
- Figure 10: Challenger banks offer the best easy-access deals
- Figure 11: RCI Bank's Freedom and Fixed term accounts offer top rates in the savings market
- Figure 12: Dyme is the easiest way to start a savings habit using text messaging
- Figure 13: Moven users can track their spending and saving in realtime
- Figure 14: Lloyds Bank's Swave app monitors spending and encourages users to save
- Figure 15: The HSBC Nudge app prods customers to spend less and save more
- Figure 16: Nationwide rewards loyal savers with a higher interest rate
- Figure 17: Savers regard instant access to be more essential in a savings account
- Figure 18: Consumers are shifting from fixed-term to instant-access deposits
- Figure 19: Existing relationship and rates offered influence consumers' decision when taking out a savings account
- Figure 20: Banks can offer products tailored to consumers' needs by linking savings to their goals
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