Savers endure worst six months since 2009 as rates scrape 0.1pc
THE slashing of interest rates to record lows of 0.1pc in an attempt to stimulate the economy has led to the worst time for savers since the financial crisis.
The first half of 2020 now represents the poorest six-month period for savings rates since 2009, with the yields on accounts already paying historically low rates of interest falling by more than half in some cases.
The average easy-access Isa paid 0.81pc in January, for example, but now offers rates on average of just 0.37pc – a fall of 56pc. The average oneyear bond account paid interest of 1.2pc at the start of the year, but now pays out just 0.71p – a 42pc fall.
Not since the financial crisis have savings deals fallen by so much so fast, but back then interest rates had much further to fall. In the aftermath of the lending crisis the Bank of England cut rates from highs of 5pc to as low as 0.5pc. Rates only began to climb back up in 2018, rising to 0.75pc in 2019, before Covid-19 led to two subsequent cuts in March to 0.25pc and then 0.1pc, where rates now stand.
The aim of interest rate cuts is to pump more money into markets and make it easier for struggling businesses to get access to debt.
But it also puts pressure on banks and building societies by squashing the profit margins between loans and savings deposits, which forces them to change the deals on offer.
Rachel Springall, of data provider Moneyfacts, said savers had cause to feel despondent.
“All average rates have fallen between January and June this year, and this demonstrates just how much the market has been impacted by the coronavirus pandemic and base rate cuts, and it will leave savers feeling frustrated and disappointed,” she said.
The best rate on the market pays 1.15pc from National Savings and Investments (NS&I). On a £20,000 deposit, that is a difference in interest over 12 months of £228, when compared with rates on offer as low as 0.1pc at NatWest.
The top easy-access Isa today comes from Sharia bank Al Rayan Bank, which pays 1pc as an “expected profit rate”, although your money is technically invested, meaning the deal is not guaranteed.
Ms Springall said: “If savers are looking for a decent return but do not wish to lock their money away for a year or more, then a notice account could be a good bridge between fixed and easy access accounts. One example of a deal with a short notice term is ICICI Bank’s 45-day notice account, which pays 1.24pc gross monthly.”