Money Insider: Cheap money scheme has ripped heart out of savings

 

On 1 August last year the Bank of England's Funding for Lending scheme was launched with the aim of providing cheaper loans and mortgages to individuals and businesses. Six months on, there's no doubt that mortgage rates have fallen as planned, but the side effects of this initiative have been nothing short of disastrous for UK savers.

Barely a day goes by without the launch of another record low mortgage deal, only last week we saw HSBC offering a two-year fixed rate at 1.98 per cent and Tesco Bank just 2.89 per cent fixed for five years.

But while homeowners are eagerly filling their boots and remortgaging to ultra-cheap home loans, savers have watched in vain as a huge chunk of their interest income has been wiped out.

We are continually being reminded of the need to put money aside for our retirement but if the incentive to save for the short term is eroded, it's going to have a knock on effect on long-term savings too.

So far the government has seemingly turned a blind eye to the plight of savers who have seen returns fall by up to 35 per cent in the past half year.

It makes you wonder if this is what ministers wanted to happen, hoping some people would become so frustrated with the meagre returns on offer that they'd give up on saving and start spending – thus giving the economy a much needed shot in the arm.

For those who rely on savings interest to boost their pension income it's a massive problem as they are facing higher energy, food and fuel costs on a much reduced income. For some savers this will leave no alternative but to use some of their capital just to make ends meet, but this strategy will only work until their nest egg is exhausted – and then what?

Last August you could have earned 3.19 per cent on an instant-access savings account; the best is now just 2 per cent. Similarly with fixed-rate savings bonds: six months ago you would have got 3.5 per cent for 1 year and 4.5 per cent for 5 years; those rates have since slumped to just 2.25 per cent and 3.1 per cent, respectively.

Even those looking to shelter their cash in tax-free savings aren't immune to the savings meltdown. It's no longer possible to get an ISA paying more than 3 per cent, whereas last August it was possible to achieve 4.15 per cent.

When you do the sums and work out what this means in real cash terms for savers, it's easy to understand how some people are struggling to keep pace with the increasing cost of living.

Last August a couple with a nest egg of £50,000 in a one-year fixed rate bond could have earned £146 a month before tax, but now the very best deal available will bring in only £93 a month, or £636 less over a year.

With experts predicting that inflation is likely to increase rather than fall back towards the 2 per cent target figure, many people can expect further hardship.

The Funding for Lending scheme is due to run for 18 months, but if the first six months of this experiment are a sign of what's to come, it's time to consider a plan B – and quick.

Free mobile broadband initiative proves popular

The mobile broadband market is dominated by a few major players; however increased competition and advances in technology have seen costs for those operators fall sharply over the past few years.

Last year a new entrant, Samba, launched a service offering free on-the-go 3G broadband for laptops, netbooks and tablets.

Of course you're not going to get something for nothing, but I'm sure the trade-off will go down well with cost-conscious mobile web users.

The way the deal works is that you pay a one-off £5 fee for a SIM, or £25 for a wireless dongle and SIM. After that there is nothing further to pay: you simply earn additional credit by watching high-quality video advertisements.

Watching the equivalent of just two and a half minutes of adverts a day earns you almost 520Mb of data transfer per month, which could save you £8 to £10 a month compared with a conventional mobile broadband contract. With more than 3.5 million adverts viewed to date, there seems to be a growing market for the service.

This cost saving service won't appeal to everybody, but with an estimated seven million adults using broadband on the go, customer numbers will continue to grow.

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

Arts and Entertainment
Banksy's 'The Girl with the Pierced Eardrum' in Bristol
art'Girl with the Pierced Eardrum' followed hoax reports artist had been arrested and unveiled
Life and Style
tech

Board creates magnetic field to achieve lift

Voices
Stephanie first after her public appearance as a woman at Rad Fest 2014
voices

Arts and Entertainment
James Blunt's debut album Back to Bedlam shot him to fame in 2004
music

Singer says the track was 'force-fed down people's throats'

PROMOTED VIDEO
News
peopleJust weeks after he created dress for Alamuddin-Clooney wedding
Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010
films

George Lucas criticises the major Hollywood film studios

Sport
football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
Arts and Entertainment
Leonardo DiCaprio talks during the press conference for the film
films

Film follows park rangers in the Congo

Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
News
i100
Sport
Adel Taraabt in action for QPR against West Ham earlier this month
footballQPR boss says midfielder is 'not fit to play football'
News
First woman: Valentina Tereshkova
peopleNASA guinea pig Kate Greene thinks it might fly
Voices
Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'
voices

Does Chris Grayling realise what a vague concept he is dealing with?

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

    Corporate Actions Administrator / Operations Administrator

    £25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

    Customer Service Executive / Inbound Customer Service Agent

    £18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

    ASP.NET Web Developer / .NET Developer

    £60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

    Operational Risk Manager - Asset Management

    £60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

    Day In a Page

    Two super-sized ships have cruised into British waters, but how big can these behemoths get?

    Super-sized ships: How big can they get?

    Two of the largest vessels in the world cruised into UK waters last week
    British doctors on brink of 'cure' for paralysis with spinal cord treatment

    British doctors on brink of cure for paralysis

    Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
    Let's talk about loss

    We need to talk about loss

    Secrecy and silence surround stillbirth
    Will there be an all-female mission to Mars?

    Will there be an all-female mission to Mars?

    Women may be better suited to space travel than men are
    Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

    'They poured water on, then electrified me...'

    If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
    James Wharton: The former Guard now fighting discrimination against gay soldiers

    The former Guard now fighting discrimination against gay soldiers

    Life after the Army has brought new battles for the LGBT activist James Wharton
    Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

    Panic over Ebola threatens to infect the midterms

    Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
    Premier League coaches join the RSC to swap the tricks of their trades

    Darling, you were fabulous! But offside...

    Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
    How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

    How to dress with authority

    Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
    New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

    New book on Ian Curtis sheds fresh light on the life of the late singer

    'Joy Division were making art... Ian was for real' says author Jon Savage
    Sean Harris: A rare interview with British acting's secret weapon

    Sean Harris: A rare interview with British acting's secret weapon

    The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
    Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

    Tim Minchin interview

    For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
    Boris Johnson's boozing won't win the puritan vote

    Boris's boozing won't win the puritan vote

    Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
    Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

    Tim Wheeler: Alzheimer's, memories and my dad

    Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album