Rate cut hurts savers again as outbreak hits markets

SAVERS are having that familiar sinking feeling, as last week’s Bank of England base rate cut left them at the sharp end of efforts to tackle the coronavirus. Rates have returned to their record low of 0.25 per cent, exactly where they were in March 2009, when savers bore the brunt of attempts to avert the financial crisis.

Millions of elderly people who are living off the interest on their deposits have every right to feel bitter, as they are getting near zero reward for a lifetime of diligent saving.yet at the same time, last week’s base rate cut was great news for mortgage borrowers, as rates look set to plunge even lower.

Whether you are a saver or borrower, you should act now to make the best of the situation.

RATE WOE

Savers have endured a lost decade of low interest rates with no end to the misery in sight.

Anna Bowes, co-founder of savings rate tracking service Savings Champion, said rates were falling before last week’s move and this trend will now accelerate.

The only consolation is that the big high street banks offer such poor returns that they can hardly fall further, with Lloyds Bank paying just 0.10 per cent on its Easy Saver.

Accounts closed to new business pay even less, with Halifax cutting the rate on its Liquid Gold account to just 0.05 per cent last month.

Bowes said savers can only hope the rate cut is an emergency measure, as the BOE claimed.

Chancellor Rishi Sunak announced a new £100 billion Term Funding Scheme in his Budget, to fund bank lending to businesses.

Hargreaves Lansdown personal finance analyst Sarah Coles said this is another blow: “More cheap money from the Government means banks will not need to attract it from savers by offering better rates.”

She urged savers to shop around and consider challenger banks, which may be unfamiliar but are covered by the Financial Services Compensation Scheme.

At the time of writing, RCI Bank paid 1.90 per cent fixed for five years, with Shawbrook Bank paying 1.72 per cent. RCI was paying 1.75 per cent over three years, with app-based bank Atom paying 1.70 per cent over the same term, and 1.50 per cent over one year.

Cynergy Bank was paying 1.31 per cent with instant access, while Nationwide’s 1 Year Triple Access Online Saver paid 1.21 per cent.

Moneysavingexpert.com founder Martin Lewis said act fast to take advantage of current fixed rates.

The average UK saver earns just

0.4 per cent, while the best easyaccess accounts pay 1.30 per cent.

“These rates will likely drop, yet at the very least make sure your money is in the top payer,” he said.

FEELING DOWN

Low interest rates have forced many savers to take bigger risks in return for a higher yield, by investing in the stock market. Plenty will now be hurting as the FTSE All-share crashes by around 30 per cent, especially retirees who took advantage of pension freedom reforms to move their retirement savings into drawdown.

AJ Bell senior analyst Tom Selby said this is the first bear market since the reforms were introduced in 2015: “Anyone making a pension withdrawal after suffering a hit on their investments may have to reduce their income now or risk running out of money at some point.”

Selby said draw cash first if you can: “This will give your investments better opportunity to recover value.”

Otherwise use the natural yield produced from dividends and interest. “Do not panic buy or sell, as this adds costs with no guaranteed benefits,” he added.

The only good news was the Chancellor’s surprise commitment to more than double the annual limit for Junior Isas and Child Trust Funds to £9,000 a year. Money invested for children today could have 18 years to grow, longer if they leave it invested into adulthood, when today’s volatility should be long forgotten.

THE WINNERS

Amir Goshtai, managing director of Experian Marketplace, said homeowners with tracker mortgages will reap the benefit of lower rates: “Someone with a £150,000 tracker mortgage over 20 years at 1.75 per cent will see their monthly repayment fall by £34 to £707, saving them £408 over the year.”

Nationwide quickly said it would pass on the cut to variable rate borrowers but others stalled, while those on fixed rates will not benefit until their deal expires.

The average standard variable mortgage charges 4.89 per cent, and the next few weeks could offer a terrific opportunity to grab a much cheaper deal.two-year fixed rates currently start at 1.24 per cent and could fall below 1 per cent as lenders respond to the BOE move.

Credit cards, overdrafts and other debts will see little change because the bank’s interest rate plays little role in how much they charge.

Andrew Hagger, personal finance expert at Moneycomms.co.uk, said most banks charge around 40 per cent interest on overdrafts: “Even if they passed on the rate cut, it would make little difference.”

‘These rates will likely drop, yet at the very least make sure your money is in the top payer’