The Government’s desperate measures to kick-start the economy by letting banks have ‘cheap’ money are already resulting in lower interest rates for savers.
And this week, as the Bank of England’s Monetary Policy Committee meets to discuss cutting the base rate, returns could fall even further.The money markets are betting the next move in the base rate will be down, not up, with a cut to 0.25 per cent at some point. Cuts have been discussed at recent meetings, so it is possible that the benchmark rate could fall as early as Thursday.
Regardless of what is decided, other factors mean the income that savers can earn from their deposits is under pressure.
Harmony: Tony McNiff, with partner Sue Logan, manages several deposits through one account so that he can keep track of any changes in ratesOne is the Government’s Funding for Lending scheme launched last month. This will make available to banks and building societies up to £80 billion of cheap loans.
The banks pay just 0.25 per cent interest on these loans, providing they then boost lending to consumers and individuals. But a cruel side effect is to reduce the need to raise funds from savers.
Miles Bingham, chief executive of governormoney.com, which allows savers to access deals from ten different banks and building societies through one account, says: ‘Funding for Lending is going to have an impact. If a bank can borrow from the Government at 0.25 per cent, there is little incentive to pay 3.5 per cent to savers.’
Sue Hannums, director of website savingschampion.co.uk, agrees: ‘We have seen rates starting to inch down and there is definitely less desire from providers to attract money. All the indications are that Funding for Lending is having an impact.’
Hannums says some competitive fixed rates have been pulled. There have also been cuts to the best-paying instant access accounts, popular with many savers.
More... Interest rates predictions: Market forecasts rise to 0.75% will come as late as 2017 As banks and building societies pull the plug on best buy savings deals, why exactly are rates plunging? Compare: Best savings rates‘Rates peaked between the end of June and early July and have been falling since,’ she says. For example, ING Direct’s best paying instant access account was 3.24 per cent in July, but only three per cent by last week. Coventry Building Society launched a Telephone Saver account paying 3.25 per cent at the end of June. The rate for new applicants was cut to 2.8 per cent in July and the account was withdrawn entirely late last month.
Hannums also highlights the Kent Reliance Building Society’s Direct Savings account, launched in June paying 3.2 per cent, and withdrawn a fortnight ago with no direct replacement. On Friday, Derbyshire Building Society, part of Nationwide, cut the rate on its NetSaver account from 3.06 to 2.9 per cent.
Hannums says: ‘Rates are not plummeting across the board but they are being gradually reduced.’
Tony McNiff, 61, and his partner Sue Logan, have an eye for strategy. They both play the guitar and are keen bridge players, and Tony, who lives in Bradford, has represented Yorkshire at a national level. Tony is taking a similar strategic approach to staying on top of his savings.
He uses Governor Money to manage multiple deposits through a single account. He first invested in October, signing up to a four-year bond with Progressive Building Society, paying 4.05 per cent. He followed this up with an Isa investment that earns 4.5 per cent, also with Progressive. Neither account is currently on sale.
Tony, a traffic systems engineer for a local authority, says using the website helps him keep track of exactly what his savings are doing.
He says: ‘It is easy to miss a letter telling you a rate is changing, and by the time you’ve noticed you’ve lost a couple of hundred pounds in interest.’