Banking News Savings Accounts At Risk From Another Rate Cut As Investments Lose 300 Pounds A Year 2720

Savings accounts at risk from another rate cut as investments lose £300 a year

07 January 2009 / by Rachael Stiles
The five interest rate cuts since January 2008, bringing the base rate down from 5.5 per cent to two per cent, have already cost savers an average of £300 in investment returns, and more losses are feared if the base rate is cut again tomorrow, as is widely expected.

Those on fixed incomes, such as pensioners, are being hit particularly hard, because they rely on the income from their investments to top up their pensions and have spent their lives saving in order to fund their retirement.

But at the moment their efforts are bearing little fruit, and last year’s rate cuts – which amounted to a total cut of 3.5 per cent – have cost them dearly, with their investments returning £300 a year less than at the end of 2007, according to analysis by the Daily Telegraph.

The threat of repossession as mortgage customers struggle to keep up with their repayments has made homeowners the focal point, forcing the Bank of England to reduce interest rates

drastically, while savers have watch as their incomes shrink.

And some economists question the effectiveness of further rate cuts when some mortgage lenders do not pass on the rate cut to the consumer, despite threats from the Government to do so.

But savers are now demanding more attention, and banks are having to do a balancing act, weighing up the passing on of rate cuts to mortgage borrowers while still offering competitive rates on savings accounts and ISAs.

In January 2008, interest rates of six per cent or more were common, but many savings account providers are now offering rates of about one per cent or in some cases even less, with the rates on cash ISAs taking one of the biggest hits.

The MoneyMail has calculated that the Halifax ISA Saver, which now pays just 0.1 per cent interest on balances of up to £3,000, will generate interest of just £1 per year for each £1,000 saved.

The recent cuts have made shopping around and comparing savings accounts more important than ever; there are still some higher rate deals available, like the ICICI Hi Save fixed rate account, which is currently offering 5.1 per cent and the ING Direct savings account which is offering 5.0 per cent.

Compare the UK’s best savings accounts »

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Written by Editorial Team