Low rates 'spell pain for savers'
Filed under: Savings & ISAs
In a surprise move on Thursday, the Bank's "forward guidance" under new governor Mark Carney appeared to push back market expectations that rates could start rising from their historic 0.5% low as soon as next year.
The Bank's indications spell more tough times ahead for savers, although they could provide some reassurance for home owners, with fears raised in recent weeks that higher swap rates, which banks pay to borrow from each other, could filter through to push mortgage costs back up again for borrowers.
Savings rates have plummeted in the low interest rate environment, and experts have said the situation has been made worse by a Government scheme called Funding for Lending, which gives lenders access to cheap finance to help borrowers, making lenders less reliant on attracting savers' deposits.
Even for those who are prepared to lock their money away for a period of time, the average rate on a five-year fixed-rate bond has plunged from 3.88% one year ago to 2.33%.
Charlotte Nelson, spokeswoman for Moneyfacts, said: "Savings rates have plummeted to all-time lows due to the knock-on effect of the Government's Funding for Lending scheme. With the base rate expected to continue to remain at a record low, it is only going to lengthen savers' pain."
She said that even if the base rate were to edge up, the Funding for Lending scheme still means that banks are generally less reliant on people's savings balances. Ms Nelson said the scheme has meant that providers who are not normally high up on the "best buy" tables have risen to the top of the charts, resulting in products being pulled more quickly as savers rush to take them up.
Simon Rose, spokesman for campaign group Save our Savers, said: "There is absolutely no chink of light at all. Just when you think things are at their darkest, you realise there is still more gloom to come. Low interest rates do not produce growth. We have had four years of that and it has led to a zombie economy. If the Bank wants people to spend more, it needs to put money back in the pockets of savers."
Meanwhile, lenders have been offering some of their lowest ever mortgage rates in recent months. Moneyfacts' figures showed that the average rate on a two-year fixed-rate mortgage deal on the market has been slashed from 4.68% this time last year to 3.63%. The rate on a five-year fix has plummeted over the last year from 4.87% to 3.86%.
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