Money Insider: Savers hit by low rates and high inflation
Friday 16 November 2012
There's been plenty for borrowers to cheer about in recent weeks with mortgage rates tumbling across the board and unsecured loan rates falling to their lowest for more than six years, but for savers it's the complete opposite – their situation has become absolutely dire.
Not only are people seeing their interest income diminish before their eyes as savings rates plummet, but to rub salt in to the wound, the inflation figures released this week reveal a sharp increase in the cost of living.
It's no real surprise to hear that inflation is on the up, you've only got to look at the fuel prices being charged on the forecourts as well as the week-on-week increase in the cost of your weekly food shop – and that's before the new gas and electricity price hikes kick in.
The Government and the Bank of England's monetary policy committee have ignored the plight of savers for over four years now, trying to keep rates low in the hope it will enable borrowers to spend more and keep the economy from grinding to a halt.
There's also a view that low mortgage rates will keep people in their homes and limit the number of defaults and repossessions.
The trouble is the money that borrowers are saving on lower monthly mortgage repayments has been swallowed up by the increased cost of living, and if and when interest rates do start to rise, then the affordability issues will start to surface and it won't be pretty.
With the Consumer Price Index (CPI) inflation measure currently hitting 2.7 per cent, it means basic rate taxpayers need to earn a gross rate of 3.375 per cent to maintain the spending power of their savings.
Three or four months ago that wouldn't have been an issue, but since the Funding for Lending scheme was introduced on 1 August, savings rates have fallen off a cliff.
Lenders are no longer relying on cash from savers, hence the reason why best-buy, instant-access accounts are only paying around 2.5 per cent, and in most cases if you want to earn more than the 3.375 per cent it means locking your money away for at least four years.
Despite protestations from MPs and consumer groups, the grim reality is this isn't going to get better anytime soon. In fact, many experts predict interest rates won't pick up for at least another 12-18 months, and as for inflation, the recent rise in fuel and energy prices could keep CPI well above the official 2 per cent target for much of 2013.
So as a saver, what should you do?
It depends on your personal circumstances, but if you're building a savings pot by putting money aside on a weekly or monthly basis, then unless you've got some expensive credit card or overdraft debt to clear, the message is to carry on saving.
While the icing on the cake, your interest, may be wafer thin at the moment, at least your capital will continue to grow and when interest rates eventually pick up, you'll be in a better position to benefit. In the meantime, keep a check on interest rates to get the best return you can.
If you're no longer in a position to add to your savings and rely on them to supplement your income, it's still worth checking the rates and switching your money to squeeze the most you can from the best-buy deals.
There are still dozens of savings accounts paying 0.1 per cent or less, and if your money is sitting in one of these it's time to move it elsewhere as you can easily earn 25 times as much.
If you want instant access to your savings, the best rate you can get is 2.52 per cent from West Bromwich Building Society and 2.5 per cent from Triodos Bank. Both these accounts include an introductory bonus for the first 12 months, so you'll need to switch again this time next year, but at least you're getting the top rate on your cash in the meantime.
If you can manage without access to some of your cash then it's possible to earn a fixed rate of 2.75 per cent for one year or 3.10 per cent for three years, both on offer from Tesco Bank and with the option of receiving your interest monthly.
No matter how low rates are, it's important not to give up on the savings habit – it will always be a smart financial strategy to put some money aside each month, no matter how little interest you receive.
Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk
Debt in Britain: Numbers seeking help on how to cope with mounting bills goes up by more than half in three years
Bargain Hunter: BT improves its mobile reception with 'incredibly competitive' deals
Offset your mortgage and save thousands
Simon Read: 'It went below the radar but you could be eligible for a tax break on your savings'
Women to lose benefits from contracted-out pension scheme
- 1 East 17 bandmember Brian Harvey in 'very desperate situation’
- 2 Germanwings plane crash: Video shows co-pilot Andreas Lubitz learning to fly as a teenager
- 3 Vladimir Putin says Russia will fight for the right of Palestinians to their own state
- 4 Germanwings crash: Captain of doomed plane was only 'on board because he changed job to spend more time with his children'
- 5 Ohio Democrat Teresa Fedor speaks out during abortion debate to reveal she has been raped – and is interrupted by laughter from Republicans
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
The West has it totally wrong on Lee Kuan Yew
iJobs Money & Business
£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£32000 - £38000 per annum + benefits: Ashdown Group: A highly successful, inte...
£20000 - £35000 per annum: Recruitment Genius: This multi-award winning foreig...
Day In a Page
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station