Savers have been in for a tough time in recent years, and it can sometimes feel there are no limits on how low rates can go. Yet news that the Marcus savings account is upping its interest rate may indicate the tide is starting to turn.
So how does the Marcus savings account work? And will other banks look to increase their interest rates? Let’s take a look.
What is the Marcus savings account?
The Marcus savings brand belongs to US investment bank Goldman Sachs, and it was introduced to the UK in 2018.
Following its launch, the Marcus savings account attracted a lot of attention due to its juicy 1.5% interest rate. At the time, this rate trounced all other best buys.
Yet since 2018, the savings market has taken a considerable turn for the worse, with interest rates being cut left, right and centre.
The Marcus savings account first dropped its interest rate to 1.35% in September 2019, before slashing it further to just 0.4% by April 2020. Now, news that Marcus has decided to increase its interest rate, for the first time in THREE years has raised some eyebrows in personal finance circles.
What’s the new Marcus savings account interest rate?
The Marcus savings account has upped its ‘underlying’ interest rate from 0.4% AER variable, to 0.5% AER variable. Interestingly, this change applies to both new and existing customers – a rare sign of a bank rewarding customer loyalty.
In addition to the underlying rate, savers can get a 0.1% bonus rate on top. This bonus lasts for one year. To apply for it, you must log in to your Marcus savings account and click on the ‘interest rate’ link.
Taking into account the bonus rate, Marcus customers can now bag an effective 0.6% return.
How does the Marcus savings account compare?
There is one account that currently beats the interest rate offered by Marcus.
Coventry Building Society’s Four Access Saver account pays 0.65% AER variable interest, which technically puts it at the top of the best buy tables. Yet, it’s a stretch to call this account ‘easy access’. That’s because the account only lets you access your cash four times a year penalty free. Make more than four withdrawals and you’ll be charged a fee equal to 50 days’ interest based on the amount you take out.
If you are looking for true easy access account, then the Marcus savings account is effectively top of the tree. However, Saga also claims a branch on this tree, as it too has a savings account paying 0.6% AER interest, including a 0.1% AER fixed bonus for 12 months. Both the Saga and Marcus savings accounts allow you to start saving with just £1.
See the list of our top-rated savings accounts for more options.
What has driven Marcus to increase its interest rate? And will other banks follow suit?
The reason savings interest rates have been so pitiful in recent years has, in part, been down to the Bank of England cutting its base rate on numerous occasions.
A low base rate means that banks can borrow from one another for next to nothing. This means they don’t really need savers’ cash, which can hammer interest rates on savings accounts. This is the environment that we see today.
Yet, there are growing concerns that UK inflation is set to take off, which is generally seen as bad for the UK economy, particularly if the rate is above the government’s annual inflation target of 2%.
With this in mind, the Bank of England’s most powerful weapon to combat inflation is to raise its base rate. Should this happen, then savers should begin to enjoy greater returns on their cash. To learn more, see our article that explains what rising interest rates would mean for your wallet.
What about the Marcus Cash ISA?
The Marcus savings account sits alongside the Marcus Cash ISA. Both of these accounts pay the same rate of interest. This means it’s possible to earn 0.6% interest within a tax-free ISA wrapper.
Yet, due to the personal savings allowance, most people won’t really benefit from opening a Cash ISA over a normal savings account. To learn more, see our article outlining how ISAs have now lost their shine.
Ready to find a home for your cash? See our top-rated easy-access savings accounts for a list of options.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.