Product and Pricing Trends in UK deposits and ISAs

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