Cuts to interest rates hit savers

 

Hard-hit savers face more income falls as banks and building societies make further cuts to their interest rates.

The average return on a one-year fixed-rate account has fallen from 2.77% to 2.57% in the past two months, while the typical two-year fix has dropped from 3.29% to 3.01%, according to website Moneyfacts.

A string of providers have made reductions to some of their savings rates over the past weeks or so, including Halifax, Santander and the Principality Building Society, the consumer help website said.

Meanwhile, the most competitive rate on a five-year fixed-rate bond has fallen to 3.98%, compared with 6.56% five years ago, with many market-leading deals being withdrawn very quickly after launch.

Analysts suggested that returns on savings pots could edge lower still as banks become less reliant on attracting savers' deposits a result of the Bank of England and Treasury's recently-launched funding for lending scheme.

The £80 billion scheme was launched at the start of August and gives banks access to cheap funding to unclog the flow of credit to households and businesses.

Kevin Mountford, head of banking at comparison website Moneysupermarket said: "The main focus of many banks has been attracting retail deposits through competitive higher rates because they have been unable to access wholesale funding given the tough financial conditions and the eurozone crisis.

"Cheap loans from the Bank of England through funding for lending should give them a way to reduce their reliance on deposits. However, this could have a negative effect on savers."

Savers have already been struggling to find any accounts to give them real returns on their cash, amid high inflation and more than three years of the Bank of England base rate being held at a historic 0.5% low.

They have lost around £85 billion since 2007 as a result of interest rate cuts, according to research from Nationwide, which used industry figures from the Bank of England and Moneyfacts to compile its research.

Nationwide said this is the equivalent to almost £3,270 per household in the UK, with pensioners faced with high living costs and would-be first-time buyers struggling to save a hefty deposit having been particularly badly hit.

It calculated that a typical pensioner without a sizeable personal pension to fall back on could be seeing almost £500 a year wiped off their savings as a result of interest rate falls, compared with the returns they could have made in 2007.

The typical "non-affluent" pensioner, who tends to rely on their income from the state pension and savings, has a savings balance of just under £16,400, Nationwide found.

This would have given them interest of £669 a year at the start of the credit crisis in August 2007, based on a typical easy access savings account which paid a rate of 4.08%. This rate has since dropped to around 1%, providing an income of £179 a year, equating to £490 less.

Nationwide said that if the Bank of England base rate edges lower from its 0.5% historic low to 0.25%, as some have suggested it might, these same pensioners could see returns fall to around £138 a year, equating to an annual loss of £531 compared with 2007.

The building society said that those trying to save a deposit for their first home have also been dealt a blow by low returns.

With an average of £2,979 saved up, these savers would have seen their annual interest tumble by £90, from £122 in August 2007 to just £32 typically, based on the same average savings rates.

If the base rate drops to 0.25%, these struggling first-time buyers will be earning around £25 a year in interest, almost £100 less than in 2007.

PA

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Arts and Entertainment
Brendan O'Carroll as Agnes Brown in the 2014 Mrs Brown's Boys Christmas special
tvCould Mrs Brown's Boys have taken lead for second year?
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
news
Sport
Chelsea midfielder Cesc Fabregas
footballChelsea vs West Ham live kicks off coverage of all 10 of Boxing Day matches
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
PROMOTED VIDEO
News
i100
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Arts and Entertainment
Madonna is not in Twitter's good books after describing her album leak as 'artistic rape and terrorism'
music14 more 'Rebel Heart' tracks leaked including Pharrell Williams collaboration
News
news
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
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

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    Day In a Page

    A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

    Christmas without hope

    Gaza fears grow that conflict with Israel will soon reignite
    After 150 years, you can finally visit the grisliest museum in the country

    The 'Black Museum'

    After 150 years, you can finally visit Britain's grisliest museum
    No ho-ho-hos with Nick Frost's badass Santa

    No ho-ho-hos with Nick Frost's badass Santa

    Doctor Who Christmas Special TV review
    Chilly Christmas: Swimmers take festive dip for charity

    Chilly Christmas

    Swimmers dive into freezing British waters for charity
    Veterans' hostel 'overwhelmed by kindness' for festive dinner

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all