Money Insider: Mutuals see end of Rocky road

Since the onset of the credit crunch, the wholesale money markets have become a less attractive and more expensive source of funding for many banks and building societies.

As a result, we have seen intense competition between financial providers as they strive to replace the once plentiful wholesale funding stream with increased inflows of retail savings balances.

However, with the safety of funds just as important as the rate of interest for many consumers, the battle for savings balances has been played out on an uneven playing field since Northern Rock was nationalised, and savers were given guarantees on 100 per cent of their savings by the state.

As a result, the savings market has been distorted as consumers with deposits in excess of the Financial Services Compensation Scheme's current limit – of £50,000 – have sought the security of "safe havens" such as Northern Rock and NS&I.

There is no doubt that building societies suffered in trying to compete against the 100 per cent savings guarantee and even though they were offering higher interest rates, some savers, mindful of the IceSave debacle of 2008, were happy to sacrifice better rates for the safety of their nest egg.

Statistics from the Building Societies Association illustrate the depth of the problems this caused with a reduction in total balances of £1bn in 2009 for the mutual sector compared with an increase of £19bn in 2008.

Hopefully the lifting of the Northern Rock guarantee will be confirmed very soon and enable building societies to compete fair and square with its competitors once again.

It is unlikely consumers will desert Northern Rock in their droves, particularly as fixed rate deposits retain their 100 per cent guarantee until the date they mature. However those with funds in excess of £50,000 in a variable rate account may soon be looking for a new home for some of their savings as they spread their custom in order to retain full FSCS coverage.

No sign of a speedy rate revival

With best buy savings deals being pulled on a frequent basis, the rate-cutting strategy used by the Bank of England to restore economic stability is continuing to hit UK savers hard.

Six consecutive cuts from October 2008 saw base rate fall from 5 per cent to a record low 0.5 per cent in March 2009, where it has stuck firm ever since.

Even when rates do start to pick up again, some providers will use the opportunity to restore their profit margins and won't pass the full benefit on to savers. It's going to take a lot more than a couple of quarter-point base rate rises for savers to see a meaningful increase in their interest income.

This unchartered territory for base rate is causing other problems: ISA benefits are now so small they are hardly worth the effort and, with rising inflation, it's also nigh on impossible to protect the spending power of your cash.

It's understandable that people are angry and frustrated with the current situation, but no matter how much noise they make, neither providers nor the government are in a position to offer beleaguered savers a quick fix.

To rub salt into the wound, swap rates for both two and five years have fallen by almost 0.4 per cent this year, and the chance of seeing rates on fixed rate bonds picking up is also looking increasingly remote.

Lenders take a long-term view

There were positive moves from mortgage lenders this week, with some attractively priced longer-term fixed rate deals starting to emerge.

For most people, a long-term fix means a five-year deal. But, this week, Britannia and The Co-operative Bank launched a 10-year product which may tempt those looking for long-term certainty and who don't want the hassle – and fees – of remortgaging every two years.

You can fix your rate at 5.29 per cent for the next decade – with a £999 fee up to 75 per cent loan to value. Even though that's 0.45 per cent above the five-year rate from the same lenders, it will still appeal to those looking for greater control over their budget.

Andrew Hagger is a money analyst at Moneynet.co.uk

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

News
people Biographer says cinema’s enduring sex symbol led a secret troubled life
News
newsGlobal index has ranked the quality of life for OAPs - but the UK didn't even make it into the top 10
News
people

Kirstie Allsopp has waded into the female fertility debate again

News
In 2006, Pluto was reclassified as a 'dwarf planet'
scienceBut will it be reinstated?
PROMOTED VIDEO
News
people
News
Researchers say a diet of fatty foods could impede smell abilities
scienceMeasuring the sense may predict a person's lifespan
Sport
footballArsenal 4 Galatasaray 1: Wenger celebrates 18th anniversary in style
News
peopleStella McCartney apologises over controversial Instagram picture
News
Gillian Anderson was paid less than her male co-star David Duchovny for three years while she was in the The X-Files until she protested and was given the same salary
people

Gillian Anderson lays into gender disparity in Hollywood

Life and Style
Laid bare: the Good2Go app ensures people have a chance to make their intentions clear about having sex
techCould Good2Go end disputes about sexual consent - without being a passion-killer?
Arts and Entertainment
Richard Burr remains the baker to beat on the Great British Bake Off
tvRichard remains the baker to beat as Chetna begins to flake
Life and Style
fashionThe Secret Angels all take home huge sums - but who earns the most?
News
i100
Arts and Entertainment
Amazon has added a cautionary warning to Tom and Jerry cartoons on its streaming service
tv
News
The village was originally named Llansanffraid-ym-Mechain after the Celtic female Saint Brigit, but the name was changed 150 years ago to Llansantffraid – a decision which suggests the incorrect gender of the saint
newsA Welsh town has changed its name - and a prize if you can notice how
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

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Trust Accountant - Kent

    NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

    Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

    £18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

    Law Costs

    Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

    Day In a Page

    Italian couples fake UK divorce scam on an ‘industrial scale’

    Welcome to Maidenhead, the divorce capital of... Italy

    A look at the the legal tourists who exploited our liberal dissolution rules
    Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

    Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

    The vintage series has often been criticised for racial stereotyping
    An app for the amorous: Could Good2Go end disputes about sexual consent - without being a passion-killer?

    An app for the amorous

    Could Good2Go end disputes about sexual consent - without being a passion-killer?
    Llansanffraid is now Llansantffraid. Welsh town changes its name, but can you spot the difference?

    Llansanffraid is now Llansantffraid

    Welsh town changes its name, but can you spot the difference?
    Charlotte Riley: At the peak of her powers

    Charlotte Riley: At the peak of her powers

    After a few early missteps with Chekhov, her acting career has taken her to Hollywood. Next up is a role in the BBC’s gangster drama ‘Peaky Blinders’
    She's having a laugh: Britain's female comedians have never had it so good

    She's having a laugh

    Britain's female comedians have never had it so good, says stand-up Natalie Haynes
    Sistine Chapel to ‘sing’ with new LED lights designed to bring Michelangelo’s masterpiece out of the shadows

    Let there be light

    Sistine Chapel to ‘sing’ with new LEDs designed to bring Michelangelo’s masterpiece out of the shadows
    Great British Bake Off, semi-final, review: Richard remains the baker to beat

    Tensions rise in Bake Off's pastry week

    Richard remains the baker to beat as Chetna begins to flake
    Paris Fashion Week, spring/summer 2015: Time travel fashion at Louis Vuitton in Paris

    A look to the future

    It's time travel fashion at Louis Vuitton in Paris
    The 10 best bedspreads

    The 10 best bedspreads

    Before you up the tog count on your duvet, add an extra layer and a room-changing piece to your bed this autumn
    Arsenal vs Galatasaray: Five things we learnt from the Emirates

    Arsenal vs Galatasaray

    Five things we learnt from the Gunners' Champions League victory at the Emirates
    Stuart Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

    Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

    This deal gives England a head-start to prepare for 2019 World Cup, says Chris Hewett
    Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

    The children orphaned by Ebola...

    ... then rejected by surviving relatives over fear of infection
    Pride: Are censors pandering to homophobia?

    Are censors pandering to homophobia?

    US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
    The magic of roundabouts

    Lords of the rings

    Just who are the Roundabout Appreciation Society?