Agony piled on savers but lenders are in the money
Those who salt their money away have been hammered again as rates are chopped back. Chiara Cavaglieri and Julian Knight report
For every good news story giving borrowers something to smile about, savers are hurting. Mortgages are getting cheaper and lenders are battling to offer lower fees and longer interest-free periods to credit card customers, but savers are getting the raw end of the deal. Rates have taken a dramatic nosedive and with inflation taking its bite, many savers are actually losing money.
The consumer prices index rate saw a surprise drop to 2.4 per cent in May, yet the paucity of rates on offer means that there are no standard savings accounts that beat or match inflation today.
This rate wasteland is even more stark when you consider that the CPI measure is believed to often underestimate the true extent of the rise in the cost of living.
Cash ISAs are a better bet because you don't have to worry about tax and as a result several do offer inflation-proof returns, but they all carry strings.
For example, United Trust Bank and Julian Hodge Bank offer bonds paying 2.45 per cent and 2.40 per cent respectively but you lose access to your money for five years.
"Cash ISAs can provide a helpful boost, not only because the rates are better, but also because the interest is tax free," says Anna Bowes of Savings Champion. "However, you have to either have a larger balance to transfer, be an existing customer/current account holder with that provider, or be prepared to lock your money up."
Savers were dealt another blow when the Government-backed bank National Savings & Investments announced it will slash rates on three savings products, coming into effect on 12 September 2013.
The Direct Isa will be reduced from 2.25 per cent to 1.75 per cent, the Direct Saver from 1.50 per cent to 1.10 per cent and the NS&I Income Bond will lose 0.5 per cent, reduced to just 1.25 per cent.
"This latest reduction by NS&I is disappointing news for savers, who have an uphill struggle to get the best rates. With the NS&I changes due in September savers will have to decide whether to stay or switch from a trusted brand," says Charlotte Nelson of Moneyfacts.co.uk.
One bank has bucked the trend by actually increasing rates with ICICI Bank launching a new range of HiSave fixed-rate accounts.
You need at least £1,000 to open any of the three accounts and you won't have access to your money, but you are rewarded with a market-leading rate of 2.30 per cent on a two-year bond, 2.55 per cent on a three-year bond and 2.75 per cent on a five-year bond. ICICI is based in India but its UK subsidiary is fully covered by the Financial Services Compensation Scheme so your deposits are protected (up to a maximum of £85,000).
Aside from this lonely nugget of positive news, Virgin and NS&I are the latest in a long line of banks and building societies reducing returns and shrinking their savings ranges.
Since the beginning of the year Moneyfacts.co.uk says there have been 311 reductions made to savings products and this week, Santander condensed its range of nearly 100 accounts – many of which the bank took on when it acquired Alliance & Leicester, Abbey and Bradford & Bingley – to just five default accounts.
The bank has said that the majority of customers will see a rate rise when they switch and the most fortunate will see rises of 1.90 per cent, but this still leaves hundreds of thousands of Santander customers facing cuts.
Savers with their money in the old Alliance & Leicester eSaver (issue 5), for example, will lose a mammoth 1.86 per cent when their rate falls from 2.36 per cent to 0.5 per cent.
It is useful for providers to keep the number of different savings accounts on the books to a minimum so that customers can more easily understand exactly which interest rate applies to their account, but it is a worry if other banks use consolidation as an opportunity to decrease rates.
Falling rates are a huge blow to savers, particularly with NS&I's products, which have been top of the best buys after savings rates across the market plummeted to all-time lows due to the knock-on effect of the Government's Funding for Lending Scheme, introduced to help kick start the mortgage market. "Banks now no longer need to rely on savings to fund their mortgages. Because of this, providers who are not normally best buy rates have slowly risen to the top of the charts.
"This has resulted in products being withdrawn or vastly reduced due to oversubscription," says Ms Nelson.
With the FLS recently being extended, savings rates are likely to stay low for a long time so savers will continue to face an uphill struggle to get a decent return on their money.
Rate changes and bonus periods make life more difficult but Savings champion.co.uk offers a free Rate Tracker tool to help monitor accounts.
It's more important than ever for savers to review existing accounts to see if they could be getting a better rate elsewhere and when the best buys come to market, they need to move quickly before they're pulled. Above all, it could be time to consider other ways to get a decent return.
"Savers can improve their returns by shopping around for the best rates and ensuring they switch accounts when at the end of a fixed term rate," says Danny Cox of Hargreaves Lansdown.
"Interest rates are going to remain low for at least a couple of years and therefore savers have the choice of the spending power of their cash falling or taking some risk in the markets with the aim of improving returns."
Ways to put the cash to work
NS&I's average interest rate is 1.50 per cent, but there's also a monthly £1m prize.
Lend your money directly to individuals and take banks out of the equation, splitting each loan across many borrowers to spread risk.
If you are prepared to risk capital, look into equity income funds or invest in a stocks and shares ISA.
Lenders such as First Direct, Accord, Woolwich and Yorkshire BS facilitate a home loan interest reduction, while retaining access to cash.
With a buoyant rental market, many people are becoming landlords. Risks include falling prices, difficult tenants and maintenance costs.
Tips on tipping: How and when should you give extra money for good service?
Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help
Is it really that bad in the bond market?
The 10 Best money-saving sites
Pawn again: The rebirth of the high-street credit merchants
- 1 10 ways we damage our teeth – without realising
- 2 Fifa corruption arrests: Nike reported to be 'multinational sportswear company' at centre of bribery claims over Brazil shirt deal
- 3 Facebook Messenger sends 'creepily' precise location data, as revealed by Marauders Map Chrome extension
- 4 Photo of wedding guest proposing to girlfriend in front of bride and groom goes viral
- 5 Charlie Charlie Challenge explained: it's just gravity — not a Mexican demon being summoned
EU referendum: David Cameron's rules are a 'democratic disgrace', says French-born Scottish politician set to be denied a vote
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Australian man punched in the face for defending Muslim women from abuse on train
A nation of inequality: How the UK is failing to feed its most vulnerable people
David Starkey 'tells Amal Clooney to shut up and stop over-promoting human rights'
iJobs Money & Business
£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...
£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...
£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...
Day In a Page
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool