Interest rates heading south

Hard- hit savers face more income falls as banks and building societies make further cuts to their interest rates.

The average return on a one-year fixed-rate account has fallen from 2.77% to 2.57% in the past two months, while the typical two- year fix has dropped from 3.29% to 3.01%, according to website Moneyfacts.

A string of providers have made cuts to some of their savings rates over the past weeks or so, including Halifax, Santander and the Principality Building Society,

“‘Funding for lending’ could have a negative effect on savers”

the consumer help website said.

Meanwhile, the most competitive rate on a five-year fixed-rate bond has fallen to 3.98%, compared with 6.56% five years ago, with many market-leading deals being withdrawn very quickly af ter launch.

Analysts suggested that returns on savings pots could edge lower still as banks become less reliant on attracting savers’ deposits as a result of the Bank of England and Treasury’s recently launched “funding for lending” scheme.

Kevin Mountford, head of banking at comparison website Moneysupermarket, said: “Cheap loans from the Bank of England through ‘ funding for lending’ should give banks a way to reduce their r e l i a n c e on deposits. However, this could have a negative effect on savers.”