Recent analysis has revealed that interest rates on savings accounts have been depressed since the introduction of the Bank of England’s Funding for Lending Scheme (FLS), which was launched in August.
Under the FLS, banks and building societies can borrow money at very low rates, which they are then supposed to pass on to borrowers, but so far there has only been an increase in the number of mortgage deals available to borrowers with a large deposit to put down, while there has been no increase in the number of high loan-to-value mortgages
However, a worrying knock-on effect has been that average interest rates have dropped across all types of short-term savings accounts, as lenders do not need to compete as much to attract savers’ money and some easy access savings accounts have simply been withdrawn altogether, while of the ones that are left, many offer rates that barely match the Bank’s base rate.
Conducted by financial information provider Moneyfacts, the analysis shows that average savings rates have collapsed from:
• 1.08% to 0.96% for easy access accounts holding up to £10,000.
• 1.38% to 1.19% for notice accounts holding up to £10,000.
• 2.74% to 2.24% for one-year fixed rate accounts holding up to £10,000.
• 1.76% to 1.59% for easy-access cash Isas.
• 2.82% to 2.42% for fixed-rate cash Isas.
Moneyfacts reports further that the number of savings accounts including Isas has fallen by 15 per cent since the beginning of the year to only 2,038, while the number of accounts paying above Bank rate has dropped by 19 per cent to 1,255.
Since the FLS has an 18-month window during which lenders can borrow Government money at a vastly discounted rate and four years thereafter to lend the money out, it would seem that savers’ misery is not going to be eased any time soon.
If you’re suffering from low interest rates on their savings or if you would like to discuss the best saving options available for you, then come and speak to the financial planning team at Milsted Langdon.
Steve Horton is a Chartered Accountant and a Chartered Financial Planner who specialises in helping clients to manage their pensions and investments.