Money Insider: Savers' misery as Government decides to
Friday 03 May 2013
Last August the Government's Funding for Lending scheme (FLS) was launched to bring down the cost of borrowing via mortgages and loans to help individuals and businesses. Nine months on, mortgage rates have fallen sharply as planned, but the side-effects have proved a nightmare for savers who have seen interest rates plummet.
To rub salt into the wound it has just been announced that the FLS is to be extended for a further 12 months.
Barely a day goes by without the launch of another record low mortgage deal. Only this week we saw HSBC offering a five-year fixed rate at 2.49 per cent for those with a 40 per cent deposit.
But while homeowners are making hay and remortgaging to low-cost home loans, savers have looked on helplessly as a huge chunk of their interest income has been washed away.
We are frequently 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 rates fall by up to 40 per cent since last summer.
It makes you wonder if this is what ministers had planned, hoping consumers would be so frustrated with the meagre returns on offer that they'd give up on saving and start spending instead – thus giving the economy the boost that the Coalition is desperate to see.
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 them with no alternative but to use some of their capital just to make ends meet, but this strategy will only work for a limited period until their nest egg is exhausted.
Last August you could have earned 3.19 per cent on an instant access savings account; the best is now just 1.80 per cent. Similarly with fixed rate savings bonds, six months ago you would have got 3.50 per cent for one year and 4.50 per cent for five years; those rates have since slumped to just 2.15 per cent and 3.00 per cent respectively.
Even those looking to shelter their cash in tax-free savings aren't immune to the savings meltdown where there is only one 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.
A couple with a nest egg of £50,000 in a one-year fixed rate bond could have earned £146 per month before tax last August, but now the very best deal available will only bring in £90 per month, which works out at £672 less over the course of a year.
With experts predicting that inflation is more likely to increase rather than fall back within the 2 per cent target figure, the hardship for many people is likely to increase.
It's plain to see the financial misery that the Funding for Lending scheme is causing for savers, but the Government ploughs the same furrow regardless. George Osborne wants us to become a nation of savers – two words for you, George: fat chance!
Zopa's peer-to-peer lending passes £300m
The peer-to-peer market continues to gather momentum, with RateSetter and Zopa both reporting record business from savers disillusioned with low rates from banks and building societies.
This week Zopa reached a new milestone of £300m lent to UK consumers through its peer-to-peer lending platform. Giles Andrews, chief executive of Zopa, said: "We have already seen a 200 per cent uplift in savers signing up to Zopa in 2013, and with the financial sector experiencing a challenging time, this signals an exciting opportunity for us and future for the peer-to-peer industry."
Despite Zopa's default rate being extremely low (0.8 per cent on all money lent since launch), it has now launched a "Safeguard" feature to make up all the money owed from a borrower, including the interest, in the rare instance that they are unable to pay back their loan.
Much like the "Provision Fund" from RateSetter, although Safeguard isn't a cast-iron safety net like the Financial Services Protection Scheme, it does provide greater security and comfort to peer-to-peer customers. With rates of 5 per cent plus on offer for some products, it's no wonder more people are taking the plunge.
Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 President of Argentina adopts Jewish godson to 'stop him turning into a werewolf'
- 2 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
- 3 The 'Black Museum': After 150 years, public set to see exhibits from police’s grisly crime museum
- 4 AirAsia flight QZ8501 missing: Plane carrying 162 passengers from Indonesia to Singapore disappears over Java Sea
- 5 Naomi Wolf reacts to Isis 'conspiracy theories' critism after she questions whether beheading videos are real
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Immigrants make UK racist, says Ukip councillor Trevor Shonk
Millions of Britons struggling to feed themselves and facing malnourishment
Nigel Farage: Ukip leader named 'Briton of the year' by The Times
iJobs Money & Business
Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...
Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...
Not specified: Selby Jennings: SVP Model Validation This top tiered investment...
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
Day In a Page
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 deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
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
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens