Product and Pricing Trends in UK Deposits and ISAs

This report specifically analyses the retail deposits and ISA market in the following segments: ordinary savings accounts, regular savings accounts, Mini cash ISAs, current accounts, and foreign currency accounts.

Scope

- 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

Highlights of this title

Cash ISAs continue to grow. While sales of stocks and shares ISAs are set to decrease over the coming period, cash ISAs are increasing their overall share of the retail deposits market. There has been a sharp reversal of previous trends, as providers move to offer shorter notice accounts.

Foreign currency accounts have slightly lost market share by number of accounts offered, and the failure of Kaupthing has had a negative impact on the offshore euro and dollar markets, as before its collapse it provided one of the best interest rates available.

By December 2008, banks non-tiered offerings outnumbered tiered accounts, while building societies still provided a combined total of 295 tiered accounts to 194 non-tiered. This may suggest that banks are able to respond more rapidly than building societies to market conditions and consumer sentiment.

Key reasons to purchase this title

- 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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Overview 1
Catalyst 1
Summary 1
Methodology 1
Executive Summary 2
Investors decline in confidence has had important effects on each of the retail deposit market segments 2

Chapter 1 Introduction 6
What is this report about? 6
Who is the target reader? 6
How to use this report 6

Chapter 2 Market Context 7
Introduction 7
The deposits market has grown more than twice as fast as the total S&I market 7
Net deposit inflows continue their rise, as do mass equity outflows 8
Datamonitor anticipates consistent growth in the deposits market 9
The ISA market continued to grow in 2007 10
Total ISA sales continued their slow but sustained growth 10
Mini ISAs dominate the ISA market and are comprised mostly of cash ISAs 11
Maxi ISAs will feel the economic downturn in one to two years 12
New ISA subscriptions are driven by mini cash and stocks and shares ISAs 13
Stocks and shares ISAs still lead the rise in the average value of new ISA subscriptions 14
The market correction will take at least two years to recover from 15
Tables 17

CHAPTER 3 PRODUCT TRENDS and segments IN UK DEPOSITS AND ISAS 19
Introduction 19
Balancing safety against returns is now top priority 19
The failure of Icesave fundamentally changed savers motivations 20
Nationalized banks can afford to offer lower rates as they are considered safer 20
Foreign entrants offer better returns 20
Customers are keen not to tie their money up 20
Returns are falling drastically as the Bank of Englands base interest rate is the lowest ever 20
Many of the best returns are offered for an initial period in order to attract customers 21
Product SEGMENTS 22
Introduction 22
Key findings 22
Ordinary savings 23
Ordinary savings accounts are on the increase once again 23
Non-tiered accounts soared within 12 months, halving the gap between tiered and non-tiered offerings to just 12% 24
Notice periods decreased further as customers fear being too tied down 25
Banks and building societies differ slightly in their distribution methods, but both favor branch-only 27
Interest paid on ordinary savings accounts tumbled due to the credit crunch 28
Cash ISAs 30
The growth of the cash ISA continues 30
The emphatic move away from longer notice accounts was a reversal of previous trends 30
Providers concerns over the economy mean less fixed rate accounts 31
As interest rates tumbled across the board, ISA rates suffered 32
Distribution networks are similar for both banks and building societies, but banks have greater internet provision 33
Top competitors continue to tie their products together to increase their share of customers wallets 34
Banks continue to offer better rates than building societies on cash ISAs, but the gap is slight 34
Regular savings accounts 35
Regular savings accounts declined by 4.8% in 2008 35
Building societies rid themselves of fixed rate regular savings accounts 36
There was a slight shift towards shorter notice periods for regular savings accounts in 2008 36
While regular savings interest rates have fallen, they still offer the best returns 38
Current accounts 39
Current account provision remains consistent throughout 2008 39
Interest rates have fallen slightly in current accounts despite being far below the base rate already 39
No interest current accounts are becoming more common, a trend that is set to continue 40
Offsetting or pooling has become far less popular 41
Building societies continue to embrace funding requirements over account fees 41
Current accounts without overdrafts still comprise an extremely small portion of the overall sector 41
Distribution of current accounts is geared towards ease of access 41
Foreign currency accounts 42
The number of foreign currency accounts fell over 2008 42
Most onshore euro current accounts continue to offer no interest rates 43
The failure of Kaupthing has had a negative impact on the offshore euro and dollar markets 43
The onshore euro accounts market sees a surprise new entrant 45
Ordinary savings accounts 46
Cash ISAs 49
Regular Savings Accounts 52
Current accounts 53
Foreign currency accounts 54

APPENDIX 55
Definitions 55
Average interest rate 55
Base rate/discount rate 55
Deposits 55
Investment trusts 55
ISAs and mini cash ISAs 55
OEICs 55
Unit trusts 56
Methodology 56
Further reading 57
Ask the analyst 57
Disclaimer 57

List of Tables
Table 1: Overview of the retail savings and investments market, 2004-08e 17
Table 2: Total net inflows in UK retail savings and investments by broad product line, 2003-07 17
Table 3: Overview of the retail savings and investments market, 2009f-2013f 17
Table 4: Total gross ISA sales segmented by type 17
Table 5: Gross mini ISA sales segmented by type 18
Table 6: Gross maxi ISA sales segmented by type 18
Table 7: Number of ISA accounts subscribed in current year segmented by type 18
Table 8: Average subscriptions per account 19
Table 9: Forecast annual ISA balances by stocks and shares and cash, 2008-12 19
Table 10: Market segmentation, number of accounts, January and December 2008 46
Table 11: Ordinary savings accounts by tiered or non-tiered, market share by number of accounts, January and December 2008 46
Table 12: Tiered and non-tiered accounts offered by banks and building societies, number of accounts, January and December 2008 46
Table 13: Ordinary savings accounts by notice period, market share by number of accounts, 1999-December 2008 47
Table 14: Number of ordinary savings accounts by notice period split by institution, number of accounts January and December 2008 47
Table 15: Distribution method for ordinary savings accounts provided by building societies, number of accounts, January and December 2008 48
Table 16: Distribution method for ordinary savings accounts provided by banks, number of accounts, January and December 2008 48
Table 17: Average interest rates on ordinary savings accounts, % gross, January 2007, January 2008 and December 2008 49
Table 18: Average interest rates offered on ordinary savings accounts split by institution, % gross, January and December 2008 49
Table 19: Cash ISA accounts by notice period, number of accounts, January and December 2008 49
Table 20: Fixed and variable rate cash ISA accounts split by institution, number of accounts, January and December 2008 50
Table 21: Average interest rate on cash ISAs, % gross, January and December 2008 50
Table 22: Distribution method for cash ISAs provided by building societies, number of accounts, January and December 2008 50
Table 23: Distribution method for cash ISAs provided by banks, number of accounts, January and December 2008 51
Table 24: Average interest rates offered on ordinary savings accounts split by institution, % gross, January and December 2008 51
Table 25: Fixed and variable rate regular savings accounts split by institution, number of accounts, January and December 2008 52
Table 26: Notice periods for variable rate regular savings accounts, number of accounts, January and December 2008 52
Table 27: Average interest rates for regular savings accounts, % gross, January and December 2008 52
Table 28: Average interest rates for current accounts, % gross, January and December 2008 53
Table 29: Average interest rates for current accounts split by institution, % gross, January and December 2008 53
Table 30: Distribution patterns in the current account market, number of accounts, January and December 2008 53
Table 31: Segments of the foreign currency market, number of accounts, January and December 2008 54
Table 32: Interest rates for offshore dollar and euro accounts, % gross, January and December 2008 54
Table 33: Notice periods for offshore dollar and euro accounts, number of accounts, January and December 2008 54

List of Figures
Figure 1: Overview of the retail savings and investments market, 2004-08e 8
Figure 2: Total net inflows in UK retail savings and investments by broad product line, 2003-07 9
Figure 3: The deposits market is forecast to continue to grow over the next five years 10
Figure 4: Total gross ISA sales segmented by type 11
Figure 5: Table 4: Gross mini ISA sales segmented by type 12
Figure 6: Table 5: Gross maxi ISA sales segmented by type 13
Figure 7: Table 6: Number of ISA accounts subscribed in current year segmented by type 14
Figure 8: Table 7: Average subscriptions per account 15
Figure 9: Table 8: Forecast annual ISA balances by stocks and shares and cash, 2008-12 16
Figure 10: The market shifted back towards ordinary savings accounts between January and December 2008 (measured by number of accounts) 23
Figure 11: Non-tiered accounts increased in popularity, 2008 24
Figure 12: Banks non-tiered accounts outnumbered tiered accounts by December 2008 25
Figure 13: Longer notice periods continue to become less common, extending this trend to nine years 26
Figure 14: Instant and no-notice accounts increased for banks and building societies alike 27
Figure 15: Banks have seen a large increase in branch-only, and it remains the method of choice for building societies 28
Figure 16: Average interest rates on ordinary savings accounts fall to a level below January 2007 29
Figure 17: Banks and building societies interest rates both plummet 30
Figure 18: There has been a large shift towards shorter notice accounts 31
Figure 19: Fixed rate accounts fell due to fears over the economy 32
Figure 20: Average interest rates, ISAs 33
Figure 21: Both building societies and banks favor branch-only, but banks provide more online services 34
Figure 22: ISA interest rates banks vs. building societies 35
Figure 23: Building societies reduced their fixed rate account provision 36
Figure 24: Regular savings accounts shifted slightly towards shorter notice periods 37
Figure 25: Average Interest rates remain considerably higher for fixed rate accounts 38
Figure 26: Interest rates have remained constant compared to the massive fall in the Bank of England base rate 39
Figure 27: Building societies rates have dropped substantially but remain higher than those offered at banks 40
Figure 28: The vast majority of accounts are accessible in multiple ways 42
Figure 29: Offshore accounts dominated the foreign currency market 43
Figure 30: The average rate of return on $100,000 or €100,000 has plummeted 44
Figure 31: Kaupthings collapse had a direct effect on the shift towards shorter notice periods in the overseas dollar and euro markets 45

Britannia Building Society
HSBC Holdings plc
ING Groep N.V.
Lloyds TSB Group plc
London Stock Exchange
Premier Foods plc
Select Comfort Corp.
Unit Corporation
Yorkshire Building Society