The Bank of England (BoE) is keeping interest rates at 0.5 per cent for the 36th successive month.
This month marks three years since the BoE’s Monetary Policy Committee first cut the base rate to 0.5 per cent.
During that time savers have seen the value of their money shrink as interest rates have failed to keep up with inflation.
The average savings rate in September 2008 – before the BoE started slashing rates – was 2.46 per cent for instant-access accounts and 5.92 per cent for fixed-rate bonds. Now the same accounts pay an average of 0.2 per cent and 2.48 per cent respectively.
In contrast, the freeze on the base rate has been great news for homeowners. In September 2008, the average two-year fixed-rate mortgage with a loan-to-value of 75 per cent charged 5.96 per cent interest, tracker mortgages charged 6.12 per cent and the average standard variable rate was 6.95 per cent. These are now 3.27 per cent, 3.57 per cent and 4.36 per cent respectively.
With experts predicting that the base rate won’t rise for another 18 months, things aren’t going to improve for savers any time soon.
'A fourth year of interest rates at 0.5 per cent looks highly probable and a fifth is far from impossible given the difficult domestic and international conditions that the economy faces,' says Howard Archer, chief UK economist at IHS Global Insight.
'Our current view is that interest rates will not rise before late 2013 and the BoE could very well delay acting until 2014, given likely extended muted economic activity and the need to offset tight fiscal policy.'
This was written for our sister website, Moneywise
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