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

Voices
Lucerne’s Hotel Château Gütsch, one of the lots in our Homeless Veterans appeal charity auction
charity appeal
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
tv
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Sport
Scunthorpe goalkeeper Sam Slocombe (left) is congratulated by winning penalty taker Miguel Llera (right)
football
PROMOTED VIDEO
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
Arts and Entertainment
Jennifer Saunders stars as Miss Windsor, Dennis's hysterical French teacher
filmJennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress
Life and Style
tech
Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
Voices
Jimmy Mubenga died after being restrained on an aircraft by G4S escorts
voicesJonathan Cox: Tragedy of Jimmy Mubenga highlights lack of dignity shown to migrants
Life and Style
Sebastian Siemiatkowski is the 33-year-old co-founder and CEO of Klarna, which provides a simple way for people to buy things online
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: Java Developer - Hertfordshire - £47,000 + bonus + benefits

    £40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

    Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

    £45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

    Carlton Senior Appointments: Sr Wealth Manager - San Francisco - Inv AdvisoryFirm

    $125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager – In...

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Day In a Page

    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas
    La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

    Deaf community outraged by La Famille Bélier

    The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
    10 best high-end laptops

    10 best high-end laptops

    From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
    Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

    Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

    The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
    Susie Wolff: A driving force in battle for equality behind the wheel

    Susie Wolff: A driving force in battle for equality behind the wheel

    The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
    Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

    'No abs Adam' plans to muscle in on Usain Bolt's turf

    After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
    Calls for a military mental health 'quality mark'

    Homeless Veterans campaign

    Expert calls for military mental health 'quality mark'
    Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

    Meet Racton Man

    Analysis shows famous skeleton was a 6ft Bronze Age superman
    Garden Bridge: St Paul’s adds to £175m project’s troubled waters

    Garden Bridge

    St Paul’s adds to £175m project’s troubled waters
    Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

    Stuff your own Christmas mouse ornament

    An evening class in taxidermy with a festive feel
    Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

    Joint Enterprise

    The legal doctrine which critics say has caused hundreds of miscarriages of justice
    Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

    Freud and Eros

    Love, Lust and Longing at the Freud Museum