Savings rates are shrinking with the Bank of England’s base rate cut, with many accounts paying little, or nothing. There are also fears that savers will have to pay banks to look after their money. Are you affected - and what can you do to protect your cash? We reveal all
The latest base rate cut to 1% has been described as the final nail in the coffin for savers.
Before February’s cut the average rate of interest paid on all instant access accounts was a meagre
1.45% - and now it’s set to fall further.
Among those worst affected are pensioners relying on their savings income. According to
Saga someone who invested £20,000 in one of the over 50s specialist’s fixed rate bonds last year
would have received £115 per month interest after tax, however those opening accounts at the
current 1% rate would receive just £45 per month.
Julian Hodge bank, the Cardiff-based private bank, is already paying 0% on balances up to
£1,000. When you have factored in the current inflation rate of 4.1%, your return is well into
negative territory.
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Will we end up paying banks to look after our money?
This is what happened in Switzerland in the 1970s, and if the Bank of England base rate
falls again it is a prospect that can’t be ruled out.
Lloyds TSB's chief economist Patrick Foley, says he doubts that interest rates would ever
turn negative. In a recent radio interview he said, “Zero percent interest is a possibility for a
brief period, if people feel their savings are safe. But I can’t imagine them going negative.”
However, if banks are pushed by the Government into cutting lending rates further, it is hard
to see where they’d get the funding, but from savers. Even if this means that it scares savers
away, and further damages their cash reserves.
There are already rumours of soaring sales of home safes in the wake of the Northern Rock and
Icelandic bank crises, as savers opt to keep their money where they can count it, rather than
entrust it to the banks. This trend, if real, would be sure to increase if savers were charged for
keeping their money with a bank.
There are still ways you can make the most of your savings - we uncover your options.
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