Pensioners and savers to be hit by 2% interest rate

05 December 2008 / by Rebecca Sargent
Millions of savers and pensioners will soon be worse off following the Bank of England's decision to cut interest rates for the third time in three months.

The base rate now stands at just 2 per cent, the lowest since October 1951.

And, as pressure mounts on banks to pass the base rate cut of one per cent on to mortgage customers, savings rates are expected to fall.

However, savings rates are already as low as one per cent meaning further cuts would render savings accounts fruitless.

Pensioners who rely on the interest from their savings to boost their pension funds will be particularly affected by further cuts to savings rates. As rates stand, according to the Daily Mail, some of the best savings accounts for pensioners pay less than £25 a month on £10,000.

Commenting, director general of Age Concern, Gordon Lishman said: "If passed on to customers, interest rate cuts will music to the ears of those with loans and mortgages but could be bad news for older savers.

"Many older people who rely on the interest from their savings to top up their income could be hit hard by these cuts, particularly as so many are already struggling to pay basic household bills."

And, as the Money Mail reports that an account with a balance of £5,000 could pay as little as £4 a year, Mr Lishman urged older savers to shop around and compare savings account deals.

Meanwhile, as experts predict that interest rates could fall to as low as zero per cent, as the UK heads for a recession, David Kuo, head of personal finance at Fool.co.uk is reminding savers to be flexible and open to change in volatile times:

"It is vital at this time to ensure that any savings you have are properly invested.

"Ironically, the stock market is always thought of as being risky. But when the risk associated with insuring UK Government debt is higher than debt issued by a chocolate maker, then it's time to re-think where you want to keep your money."

The Bank's decision to cut interest rates by a further one per cent has come under criticism as it has so far failed to help those that need it most. And the news that elderly savers will be hit just when they need help most has done nothing to quash this.

David Kuo said, "it is unclear whom the rate cuts are supposed to benefit."

While director at Fairinvestment.co.uk, James Caldwell said: "So far it seems that the base rate cuts have been in vain; the cost of living has continued to increase, savings rates have continued to fall while mortgage rates have failed to reflect the full cut."

Some fixed rate savings accounts are still offering rates of up to 5.1% - check out the latest fixed rate savings deals»

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