As if things weren’t bad enough for savers, the months ahead are looking bleaker than ever.
The repercussions of the EU referendum sent the markets into chaos and in turn led the Bank of England to drop the bank base rate to 0.25 per cent, the lowest level in more than 300 years. So where is the good news in all of this? I’ll break it to you now – there isn’t going to be any for quite some time.
Savers were doomed to poor rates well before the Bank of England stepped in. But the decision gave providers an excuse to slash savings rates even further. So far this August we have seen 254 savings cuts, the most in any month this year. July was little better with 154 cuts – and that was before the base rate change.
Cash returns are dwindling and this is likely to be the case for the foreseeable future. Inflation is also set to rise over the coming months with some analysts predicting 3 per cent by 2017, a level that will easily erode savers’ cash in poor paying accounts. So what can savers do in times of crisis? Perhaps make a note to switch to a best buy? It’s a good start, but is it enough? Maybe not.
Frankly, a number of best buys are not just facing cuts, they are vanishing altogether. You may not have realised the extent of the damage, but 34 deals that either sat in the top 10 or at the top of the best buy tree have gone since the beginning of July. This is why swiftness to grab a top deal has never been so important.
Some of the best rates withdrawn from the market were on offer from challenger banks – institutions that have been a salvation for savers in recent years. Paragon Bank offered a best buy five-year fixed bond paying 2.3 per cent and a three-year bond paying 2 per cent, both withdrawn in the run-up to the rate announcement. Charter Savings Bank withdrew its two-year, 18-month, and one-year fixed best buy bonds paying 1.81 per cent, 1.7 per cent and 1.66 per cent respectively. Locking into a fixed rate right now will secure a reasonable return over the years, which is why providers are facing such high demand for these types of deals.
Regular savings accounts don’t appear to be doing much better, with Cambridge Building Society and Leeds Building Society withdrawing their 3 per cent deals soon after the base rate fell. Kent Reliance removed its 4 per cent account and replaced it with a 3.25 per cent deal just days later.
Luckily, there are still some top paying deals out there, but savers will need to open a current account for the privilege. HSBC, first direct and M&S Bank offer a 6 per cent regular saver for those who hold a current account.
Speaking of current accounts, Santander caused uproar this week by cutting the lucrative 3 per cent interest rate on its 123 Current Account to 1.5 per cent. One thing to keep in mind is that variable rates on current accounts are always subject to change, so unfortunately the time is up on this deal thanks to current market conditions. This is unlikely to be the only casualty, with Lloyds Bank announcing plans to ‘review’ interest rates at a time when interest rates are expected to be ‘lower for longer’.
Therefore, consumers would be wise to keep an eye on the Lloyds Bank 4 per cent Club Account and on the competition. TSB is still offering 5 per cent on its Classic Plus but it’s not without restrictions as savers can only earn this rate on balances up to £2,000. There’s a similar story at Nationwide. It too offers 5 per cent but only for the first 12 months on balances up to £2,500 on its FlexAccount. Needless to say, anyone looking at current accounts as a way to boost their income would do well to take advantage while they can, but be mindful that Santander may have started the ball rolling for other providers to drop their rates.
These are testing times for risk-averse people trying to get a good return on their cash. Savers will have to make do with what’s still available. Just don’t expect the best deals to be around for long.
Rachel Springall is a Finance Expert at Moneyfacts.co.uk
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