DOUBLE BLOW TO SAVINGS
New fears for your retirement funds
MILLIONS of people are facing a “devastating” double whammy on their savings this week.
Rising inflation and record low interest rates
have created a “toxic combination” that would lead to a “spiral of misery” for those relying on savings to see them through, experts warned last night.
Nest-eggs hardworking Britons have spent years building for their old age will start to “shrink”.
The situation will also hit annuity rates and payments from pensions.
According to the Bank of England, the average instant-access account now pays just 0.3per cent.
This means that an account with £1,000 will rise after a year to £1,003. But because of inflation this figure in real terms is only worth £990.
If the Bank cuts its base rate to 0.25 per cent the minute amounts of interest paid on savings will be cancelled out by growing inflation.
Experts have called on savers to shop around for the dwindling number of accounts that pay interest rates that outstrip inflation.
Billy Burrows of Key Retirement Solutions said that rates are falling so low that savers could end up paying banks and pension companies to keep their money.
He said: “Anyone retiring and looking to buy an annuity is going to find it is at its lowest level ever. If people have a pension putting money in their bank account they might end up paying their pension company to look after their money It’s a bad thing. It’s a toxic combination.”
Charlotte Nelson, from Moneyfacts website, said: “Savers have been caught in an endless spiral of misery, with rates cut dramatically and falling to the lowest level on record.
“A base rate cut to 0.25 per cent will only further savers’ pain.”
Anna Bowes, from Savings Champion, said: “There have been almost 5,000 cuts to existing savings accounts over the past four years – even though Bank rate has remained unchanged since March 2009.
“This has been devastating to savers and has seen them lose billions.”
Ms Bowes added: “Banks and building societies don’t need an excuse to cut rates. A third of easy access accounts pay 0.25per cent or less – but your money does not need to sit in one of them. You can do better.”
Experts also fear the base could tumble further to zero, or even into a negative reading, in the coming months.
However cutting borrowing costs could shore up activity in a jittery housing market by lowering mortgage costs.
It will also boost business confidence and companies’ willingness to keep investing.
The Bank’s chief economist, Andy Haldane, has called for a big package of measures to support the UK’s post-referendum economy.
The Bank committee’s policymaker Martin Weale, who has previously voted for rate rises, suggested that he was likely to use this week’s meeting to support some form of stimulus for the economy.