The Bank of England's emergency interest rate cut is only one problem British savers face, explains Sylvia Morris.
Savers have been dealt three crushing blows, with interest rates falling to just above zero. The bad news began in the early morning of 11 March, when the Bank of England revealed in a surprise announcement that it had cut its base rate by two-thirds to 0.25% from 0.75%.
It also announced a new programme that lets banks and building societies borrow from it at rock-bottom rates. In the past, these “term funding schemes” have a devastating effect on savers, as providers have no need to woo them with competitive rates.
Then came the announcement later in the day - in chancellor Rishi Sunak’s first Budget - that the amount of money National Savings & Investments plans to bring in is down by as much as 40%.
Within hours of the base rate announcement, banks and building societies started cutting their rates and pulling a raft of top deals. Rates are likely to remain fluid for a while.
The cuts were mainly meted out by smaller banks and building societies, which pay competitive rates that earn them a place in best-buy tables. Big banks tend to wait until the end of the month after a base rate cut before revealing their new savings rates. But they are quicker off the mark at announcing rates for borrowers.
The first signs suggest that they will pass on the full 0.5 percentage point cut on their standard variable mortgage rates. Given that some major high street banks already pay a miserly 0.05% to savers, it may be just a matter of time before we see savers’ rates as low as 0.01%, or even zero.
Even before the sharp fall in base rate, providers had been busy cutting their rates. From the start of the year, there have been some 400 cuts on easy-access accounts. Anna Bowes, co-founder of advice site Savings Champion, says: “This is all devastating news for savers who have lived with record low rates for over a decade. They have already seen rate cuts accelerate over the last couple of months. Things will get worse.”
James Blower, founder of The Savings Gurus, says: “The new term funding scheme is potentially bad news for savers as it will dampen any chances of providers offering savers any improvement on rates. Savers are in for a rough few months.”
Our best-buy tables are likely to change substantially in the next weeks. So, what can savers do when savings rates are so fluid?
For easy-access accounts, use Marcus by Goldman Sachs as a yardstick. Since it came to the market 18 months ago, it has paid a competitive rate. On easy-access cash Isas, check out Ford Money, which usually sits around the top of the best-buy tables.
On fixed-rate bonds and Isas, look to Charter Savings Bank, Kent Reliance, Shawbrook Bank, Ford Money and Paragon Bank as a ready guide of near-top rates.
Marcus by Goldman Sachs: 1.3%, minimum £1, online account, no bonus or withdrawal restrictions.
Easy access cash Isa
Cynergy Bank Online Isa: 1.29%, no bonus, minimum £1, online account.
Ford Money Flexible Cash Isa: 1.27%, no bonus, minimum £1, online account.
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