Savers en­dure worst six months since 2009 as rates scrape 0.1pc

The Daily Telegraph - Business - - Business - By Harry Bren­nan

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.”

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