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

world cup 2014A history of the third-place play-offs
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur

Diving in at the deep end is no excuse for shirking the style stakes

The Mexico chief finally lets rip as his emotions get the better of him
world cup 2014
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
...and the weight loss industry is rubbing its hands in glee
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
Yaya Touré has defended his posturing over his future at Manchester City
Detail of the dress made entirely of loom bands
Life and Style
There were mass celebrations across Argentina as the country's national team reached their first World Cup final for 24 years
transfersOne of the men to suffer cardiac arrest was 16 years old
Arts and Entertainment
Armando Iannucci, the creator of 'The Thick of It' says he has
tvArmando Iannucci to concentrate on US show Veep
A mugshot of Ian Watkins released by South Wales Police following his guilty pleas
peopleBandmates open up about abuse
Basketball superstar LeBron James gets into his stride for the Cleveland Cavaliers
sportNBA superstar announces decision to return to Cleveland Cavaliers
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Information Security Manager (ISO 27001, Accreditation, ITIL)

    £70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

    Biztalk - outstanding opportunity

    £75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

    Trade Desk Specialist (FIX, Linux, Windows, Network Security)

    £60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

    Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

    £35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

    Day In a Page

    A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

    A History of the First World War in 100 Moments

    Peace without magnanimity - the summit in a railway siding that ended the fighting
    Scottish independence: How the Commonwealth Games could swing the vote

    Scottish independence: How the Commonwealth Games could swing the vote

    In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
    Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

    A writer spends a night on the streets

    Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
    Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

    UK's railways are entering a new golden age

    New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
    Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

    Conchita becomes a 'bride' on Paris catwalk

    Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
    Pétanque World Championship in Marseilles hit by

    Pétanque 'world cup' hit by death threats

    This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
    Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

    Why did we stop eating whelks?

    Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
    10 best women's sunglasses

    In the shade: 10 best women's sunglasses

    From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
    Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

    World Cup final: Messi? Mascherano is key for Argentina...

    No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
    Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

    Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

    18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
    The true Gaza back-story that the Israelis aren’t telling this week

    The true Gaza back-story that the Israelis aren’t telling this week

    A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
    A History of the First World War in 100 Moments: The German people demand an end to the fighting

    A History of the First World War in 100 Moments

    The German people demand an end to the fighting
    New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

    New play reveals what Oscar Wilde said at trials

    For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
    Can scientists save the world's sea life from

    Can scientists save our sea life?

    By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
    Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

    Richard III review

    Martin Freeman’s psychotic monarch is big on mockery but wanting in malice