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; request a free guide on NISAs from Hargreaves Lansdown

News
Denny Miller in 1959 remake of Tarzan, the Ape Man
people
Arts and Entertainment
Cheryl despairs during the arena auditions
tvX Factor review: Drama as Cheryl and Simon spar over girl band

News
Piers Morgan tells Scots they might not have to suffer living on the same island as him if they vote ‘No’ to Scottish Independence
news
News
i100Exclusive interview with the British analyst who helped expose Bashar al-Assad's use of Sarin gas
PROMOTED VIDEO
Sport
Angel Di Maria celebrates his first goal for Manchester United against QPR
Football4-0 victory is team's first win under new manager Louis van Gaal
Arts and Entertainment
art
News
newsIn short, yes
Arts and Entertainment
Rob James-Collier, who plays under-butler Thomas Barrow, admitted to suffering sleepless nights over the Series 5 script
tv'Thomas comes right up to the abyss', says the actor
Arts and Entertainment
Calvin Harris claimed the top spot in this week's single charts
music
Sport
BoxingVideo: The incident happened in the very same ring as Tyson-Holyfield II 17 years ago
News
Groundskeeper Willie has backed Scottish independence in a new video
people
Arts and Entertainment
The Doctor poses the question of whether we are every truly alone in 'Listen'
tvReview: Possibly Steven Moffat's most terrifying episode to date
News
i100
Life and Style
Cara Delevigne at the TopShop Unique show during London Fashion Week
fashion
News
The life-sized tribute to Amy Winehouse was designed by Scott Eaton and was erected at the Stables Market in Camden
peopleBut quite what the singer would have made of her new statue...
Sport
England's Andy Sullivan poses with his trophy and an astronaut after winning a trip to space
sport
News
peopleThe actress has agreed to host the Met Gala Ball - but not until 2015
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

    SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

    £280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Senior BA - Insurance **URGENT**

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Training Coordinator / Resource Planner - City, London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

    Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

    £400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

    Day In a Page

    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week
    The fall of Rome? Cash-strapped Italy accused of selling its soul to the highest bidder

    The fall of Rome?

    Italy's fears that corporate-sponsored restoration projects will lead to the Disneyfication of its cultural heritage
    Glasgow girl made good

    Glasgow girl made good

    Kelly Macdonald was a waitress when she made Trainspotting. Now she’s taking Manhattan
    Sequins ahoy as Strictly Come Dancing takes to the floor once more

    Sequins ahoy as Strictly takes to the floor once more

    Judy Murray, Frankie Bridge and co paired with dance partners
    Wearable trainers and other sporty looks

    Wearable trainers and other sporty looks

    Alexander Wang pumps it up at New York Fashion Week
    The landscape of my imagination

    The landscape of my imagination

    Author Kate Mosse on the place that taught her to tell stories