Nationwide warns of savings crunch

A SAVINGS crisis will see rises in the cost of living outstrip rates on the best accounts, Britain’s biggest building society has warned.

Nationwide’s finance director Mark Rennison said that many savings rates were likely to lag further and further behind inflation until the Bank of England hikes rates.

It means anyone with money in the bank or building society would get poorer every month as their spending power gradually worsens.

Savers have been punished with dismally low rates since the financial crisis due to all-time low interest rates set by the Bank of England.

The problem was made even worse when Bank Governor Mark Carney slashed rates to a new record of 0.25pc in the wake of the Brexit vote.

And after several years where it was almost flat, inflation is rising due to the fall in the pound.

It means savers are facing a perfect storm of price rises and terrible returns on their nest egg.

Rennison said: ‘There’s a risk we will see heightened inflation and no increase in interest rates.

‘For people who are looking to get into the savings habit, you’re able to open an account with Nationwide well ahead of the current rate of inflation.

‘But it’s getting more and more difficult, and we’re in an environment where the Bank of England base rate needs to stay at their current level for a good while longer yet.’

Inflation hit 1.6pc in December, its highest level since mid-2014.

And the Bank expects price rises to gather speed, peaking at 2.7pc early next year.

Meanwhile, the average easy access savings rate on the market is 0.35pc, according to campaign group Savings Champion, and millions of customers are languishing on rates as low as 0.1pc.

Nationwide’s figures are better than average, with its best account offering 5pc interest.

However, it is just available to existing customers and is a regular saver – so you can only deposit £500 a month rather than moving all your cash across in one go.

And many of its accounts pay well below inflation, with its taxfree, one-year cash Isa offering 0.65pc, and the two-year fixed bond 0.75pc.

Rennison said the building society had worked hard to limit the impact on savers.

‘We’re very carefully looking at everything we can do to support savers in a low-interest rate environment,’ he said.

‘We can’t defy gravity. Rates have come down less than most of our competitors, but they have come down and that’s unavoidable.’ It came as the lender revealed a 16pc fall in profit to £946m for the last nine months of 2016.

Bosses put this down to a squeeze in margins as competition for customers increased, particularly in mortgages.

Santander last week launched an 18-month fixed rate product at 0.99pc, taking the industry to near-record lows.

It has fuelled concern from campaigners that Britain is indulging in a dangerous debt binge.

Rennison said he felt the borrowing was sustainable but it was important to make sure borrowers were not landed with debt they would struggle to pay when Bank rates finally started to rise.

‘The risk that the industry is very alert to is a rise in interest rates,’ he said.

‘It’s the low rates that are making mortgages very affordable in the current environment.

‘It’s the risk we all have on our radar – at Nationwide, we’re confident we’re a prudent lender.’

The building society lent £26.2bn for mortgages in the period, up from £23.6bn a year earlier, giving it a 14.3pc share of the market.

Nationwide says it saw 570,000 new current accounts opened and pulled in £6.4bn of deposits, a rise of £1.5bn.