Six years of record low base rates haven’t helped, but it was funding for lending that really hurt savers

5th March 2015 by Anna Bowes

Today marks the 6 year anniversary of the Bank of England base rate falling to a record low 0.50%. A time when savings rates of around 3% were still achievable and continued to be so until the second blow came in the form of the Funding for Lending Scheme (FLS) in August 2012.

The reduction in the Bank of England base rate was bad enough for savers, but it was the FLS that really caused the damage. While base rate brought rates down, FLS killed competition in the savings market, halving best buy rates to record low levels and instigating almost 3,000 savings rate cuts so far for existing customers.

All eyes look to when the Bank of England will increase the base rate, however the continued disconnect between base rate and savings rates means there is little reason to believe that even when rates do rise that all savers will reap the full benefits.

There is some encouraging news however. The recent FCA Cash Market Study has recognised that there are issues within the market and hopefully some of its proposals will make steps to encourage more competition. Add to this the increasing number of challenger banks being launched, keeping what little competition there is, alive. With Charter Savings Bank launching this week and more providers due in the coming months, we hope these additions will have a positive impact.

The savings market is a different place to what it was 6 years ago; with many long standing brands swallowed up under new names, such as Abbey, Alliance & Leicester and Bradford & Bingley, and new names introduced including Metro Bank, Shawbrook Bank and Charter Savings Bank.

It has never been more important for savers to manage their cash. As the FCA Cash Market Study revealed, there is at least £160 billion sitting in easy access accounts paying 0.50% or less and a further £12 billion in cash ISAs. So savers need to use all the weapons in their armoury in order to earn the best interest rates available.  From high interest paying current accounts paying up to 5%, to a mix of longer term fixed rates and the best easy access accounts, in order to have at least some cash earning the highest rates now, while retaining some funds in accessible accounts, should rates rise in the near future.

That means remaining ever vigilant and not allowing inertia to reward the banks and building societies which cut the interest rates they are paying.

As the FCA study suggested, savers need to be kept better informed of the rates they are earning and just how much more interest they could enjoy. Our free Rate Tracker service already provides this information.

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