Borrowers win but savers lose as rates lay low
NEAR-ZERO interest rates continue to divide the nation into winners and losers, with hardpressed savers suffering as banks pull their best deals, while mortgage borrowers benefit from yet another rate war.
As the economy slows, Brexit uncertainty lingers and inflation falls, the Bank of England seems more likely to cut rates than hike them, which could make life even harder for savers and better for borrowers.
The average longer-term fixedrate savings bond pays just 1.54 per cent, down from 1.89 per cent in March, with the average longer-term fixed rate cash Isa paying 1.35 per cent.
That is a two-year low, even though the BoE hiked base rates from 0.25 per cent to 0.75 per cent over the same period.
Rachel Springall, finance expert at MoneyFacts.co.uk, said banks and building societies are preparing for rate cuts: “This has offset the positive impact of base rate rises and competition from challenger banks.” More
than a third of fixed-rate bond providers removed products from sale or cut rates last month. Springall added. “The best buy one-year fixed bond now pays below 2 per cent and further cuts may well come before 2019 is over.”
Until last Friday it was still possible to get 5 per cent on a fixed-term regular savings account, but then M&S Bank cut its deal to just 2.75 per cent, following similar cuts by HSBC and First Direct last month.
Interactive Investor personal finance campaigner Myron Jobson said the stuttering savings market is pushing savers to take higher risks by investing in shares.
“Drip-feeding money on a monthly basis can smooth out some of the stock market’s highs and lows,” he said.
Jobson tipped the low-risk Vanguard LifeStrategy 20% Equity Fund for cautious investors, a global investment fund with a low ongoing charge of just 0.20 per cent.
In contrast to savers, homeowners are spoilt for choice as mortgage rates fall yet again.
Shaun Church, director of mortgage broker Private Finance, said a rate war has “exploded” as lenders compete to hit endof-year targets, driving five-year fixed rates below 1.50 per cent, and trackers below 1 per cent.
“TSB has added a marketleading five-year fix charging 1.44 per cent up to 60 per cent loan-to-value, while Halifax has turned up the heat with a twoyear tracker at just 0.98 per cent,” he said.
Church added homeowners should take advantage by remortgaging: “The next few weeks promise to be an absolute bonanza.”
Borrowers need to be sure they can afford their mortgage if rates rise, although that seems highly unlikely today.