Coalition lending fund has led to slashed savings

Competition in the savings market is starting to shrink as banks make use of the Funding for Lending cash

The Government's £80bn Funding for Lending scheme has been a disaster for savers. Since the launch of the fund at the beginning of August, rates offered by the best available fixed deals have declined by 10 per cent.

Easy access accounts have fared even worse: the best buy deals now offer returns worth 14 per cent less than they did when the scheme was launched in August. Insiders warned this week that "there's simply no need to offer decent rates as there's no competition in the market any more".

The problems stem back to the Coalition's attempt to kick-start the economy by giving lenders £80bn-worth of cheap money to lend to home buyers and small businesses.

That has improved things for borrowers, but has led to a fall in wholesale money market rates. It means banks don't really need to offer savers decent rates as they can borrow cheaper on money markets.

"It would appear that the providers have found an alternative source of cheap funds which could be attributed to the Funding for Lending scheme which was introduced at the beginning of August," said Anna Bowes of the rates analysts Savings Champion.

"Although many providers are denying that this is the reason for the fall in rates currently being offered to new savers, the timing is spot on."

She said savings rates peaked at the end of July. At that time the best easy access rate available was 3.25 per cent with the Coventry Building Society. "Since then rates have steadily dropped to their current level when the best easy access accounts are now paying just 2.8 per cent."

Savers taking advantage of the rash of higher-paying fixed rate deals that have appear this year have also been hit, says Charlotte Nelson of Moneyfacts.

""Returns on savings rates – particularly fixed rate bonds – are falling steadily, not only in terms of best buy rates but the market average as well," she warned.

Moneyfacts research shows that the best buy one year fixed rate deal available in July was the 3.6 per cent offered by the online bank Cahoot. Today the highest-paying equivalent deal is the 3.33 per cent offered by the State Bank of India.

"The Funding for Lending scheme may have an indirect link to the fall in fixed rate bonds we see today," Nelson said. "The money provided by the scheme means that the banks do not need to rely on savers to fund its mortgage book. Therefore, they are reducing savings rates as providers no longer need to be as competitive."

Longer-term fixed rate saving appear to have been less hit, with the same 4.5 per cent paying account from the State Bank of India still available now as it was in July. But few can afford to lock away their savings for such a length of time.

Industry sources suggest times will get even harder for savers in the coming weeks.

"Savers should stay vigilant in this turbulent market," advised Ms Nelson. "With good rates reducing or even being withdrawn daily savers must actively shop around for the best deal and act fast as the best deals tend to be oversubscribed extremely quickly."

At savingschampion.co.uk there's a free Rate Tracker service which tells you if the rates on your savings account change. "Anyone can add their savings accounts to their personal savings portfolio and let us track their accounts for them," said Anna Bowes.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

News
Sir David Attenborough
people
Life and Style
Young girl and bowl of cereal
food + drink
News
Comic miserablist Larry David in 'Curb Your Enthusiasm'
peopleDirector of new documentary Misery Loves Comedy reveals how he got them to open up
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
PROMOTED VIDEO
Sport
football
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
News
i100
Arts and Entertainment
Ready to open the Baftas, rockers Kasabian are also ‘great film fans’
musicExclusive: Rockers promise an explosive opening to the evening
Life and Style
David Bowie by Duffy
fashion
Arts and Entertainment
Hell, yeah: members of the 369th Infantry arrive back in New York
booksWorld War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel
News
advertisingVideo: The company that brought you the 'Bud' 'Weis' 'Er' frogs and 'Wasssssup' ads, has something up its sleeve for Sunday's big match
Arts and Entertainment
tv
News
i100
Environment
Dame Vivienne Westwood speaking at a fracking protest outside Parliament on Monday (AP)
environment
Life and Style
tech
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Recruitment Genius: Technical Report Writer

    £25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

    MBDA UK Ltd: Indirect Procurement Category Manager

    Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

    Recruitment Genius: Web Developer - PHP

    £16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

    Day In a Page

    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee
    World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

    Max Brooks honours Harlem Hellfighters

    The author talks about race, legacy and his Will Smith film option to Tim Walker
    Why the league system no longer measures up

    League system no longer measures up

    Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
    Valentine's Day cards: 5 best online card shops

    Don't leave it to the petrol station: The best online card shops for Valentine's Day

    Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
    Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

    Greece elections

    In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
    Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

    Holocaust Memorial Day

    Nazi victims remembered as spectre of prejudice reappears over Europe
    Fortitude and the Arctic attraction: Our fascination with the last great wilderness

    Magnetic north

    The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
    Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

    Homeless Veterans appeal

    Homeless in Wales can find inspiration from Daniel’s story
    Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

    Front National family feud?

    Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
    Pot of gold: tasting the world’s most expensive tea

    Pot of gold

    Tasting the world’s most expensive tea