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Savings Rates are Tumbling
As if savers hadn’t suffered enough these last few years, rates on savings accounts are on the slide again.
The Bank of England chalked up a 44th consecutive month of Bank Base Rate rates at 0.5% this week. Whilst recent talk of bank base rate dropping still further seems to have abated, equally it seems unlikely that rates will be rising anytime soon. The Bank base rate seems to be locked in position at 0.5% semi-permanently.
So why are savings rates moving South again?
It’s another form of intervention by the Bank of England that is driving bank savings rates lower. Specifically the Funding for Lending scheme. The consensus is the economy can’t move forward until the banks start lending again. Ideally to first time buyers and small businesses. To kick-start lending, the government is offering Banks and Building Societies very substantial amounts of cheap funding, as long as they can increase their lending books. It’s my reckoning that most Banks and Building Societies will be signing up for the scheme- it’s simply in their financial interests to do so.
Put quite simply if the banks can get the money they need to lend very cheaply from the government, they don’t need to pay a higher price to get this money from savers. So it’s the anticipation of this cheap funding that is driving down savings rates.
What are savers to do?
I can understand savers being exasperated. But the advice we’d offer savers is this:
- Make the most of your tax free options
- Shop around for a decent rate
- Watch out for those deals where the bonus drops away and move your money when the rate drops, always check the terms and conditions carefully and make a note in your diary.
- Consider other types of investments but remember higher returns often mean locking up your money for longer or taking some risks with your savings. Always talk to a financial adviser unless you’re really confident you know what you’re doing
The cheap funding that the banks and Building Societies are getting will actually be in the form of a loan from the Bank of England. Eventually that money will have to be paid back and at that point you might expect savings rates to rise again, as these savings institutions will want to be your best friend again. Sadly that’s 4 years away.
Or you could always do your bit for the economy and go out and spend it….!!