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Savings account rates set to fall below one per cent
Jonathan Prynn5 Feb 2009
Interest rates on savings accounts are set to fall below one per cent for the first time this week.
The average return for instant access accounts stood at 1.07 per cent before today's interest rate decision from the Bank of England.
Today's cut to 1 per cent will inevitably mean savings rates will have to be measured in fractions of percentage points from this week, experts say.
According to research from financial website moneyfacts.co.uk, which tracks almost 900 accounts, returns have collapsed by three quarters from 4.25 per cent in 15 months. This has hugely cut the living standards of savers who rely on investment income. On savings of £100,000, this would mean monthly post-tax income falling from £283.33 to £71.33.
Moneyfacts spokesman Darren Cook said: “Savers are falling over with frustration because they were the ones who took the prudent steps and now they are the ones who are being hit drastically.
“Cutting interest rates is a textbook response to a recession but people's livelihoods and day-to-day budgets are being devastated.”
The Bank's Monetary Policy Committee today cut the base rate by 0.5 per cent to an all-time low of one per cent.
For about five million home owners — 750,000 in London — the fifth consecutive monthly cut will bring more relief.
About four million borrowers with tracker mortgages will automatically see their rate reduced in line with the Bank's decision. In addition borrowers on standard variable rates with the Halifax, Nationwide, Cheltenham & Gloucester and Lloyds will also get the cut passed on in full. Borrowers on variable rates with other banks and building societies are likely to see only a part of the cut passed on.
There is growing evidence that the cuts are starting to revive interest in London's housing market. Research by Google shows the number of property-related internet searches was 15 per cent higher last month than a year earlier.
Peter Rollings, managing director of central and west London agents Marsh & Parsons, said: “We have had 130 new buyers registering in the Pimlico office alone. These are people who know they won't get 90 per cent or 100 per cent mortgages, they are coming into the market with a fair chunk of cash.
“We are doing lots of viewings, it's the busiest it's been for a long time. There are lots of foreigners around, six of the properties we currently have under offer are going to Italians.”
Mr Rollings said the market was about 25 to 30 per down on the peak with less desirable properties closer to 35 per cent below their summer 2007 values.
Reader views (6)
The Government owns Northern Rock - So why not increase the savings rate to say 5% which will bring in millions from savers who are getting next to nothing from the other banks and then with the millions from savers they can then give out mortgages to anyone who wants one. That way keeping savers and those with mortgages happy.
The other banks wont like it but tough they don't want to lend out money.
- Barry, Barnet Hertfordshire, 05/02/2009 16:52
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When BoE slaughtered rates from 5 to 1.5%, it was in the mistaken belief it would kick-start the economy. In case anyone in the good old City of London has been sleeping, this ploy hasn't worked. The BoE can go to -5%, and it will all end in financial tears for savers, for everyone. For it must be realised that without savers putting in to the financial services industry at local level (what I believe is called retail investments), the industry will all but collapse. Unfortunately, now we are seeing 1% rates, a 'run' on a bank and / or building society is dangerously near. Savers are fed up!
- Joannie, London, England, 05/02/2009 15:40
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I wonder where the members of the MPC have their savings stashed...the Caymans,Bermuda or nicely salted away in euros in Lichtenstein?
- Chris Davies, Stalybridge UK, 05/02/2009 14:30
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Proof, if it was needed, that the government and the Bank's Monetary Policy Committee do not know what to do next so they go for a textbook approach to dealing with this monumental crisis. The last cuts made no difference and this one will be no different. People have finally come to controlling their spending as they are worried sick about their jobs. Banks do not want to lend in any case. How on earth can our "leaders" (and I use the word lightly) can possibly imagine that in a country where its people are indebted to extraordinary levels the answer is to get them to spend more?!
- Daniel, London, 05/02/2009 13:40
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Its a very short term solution. Best to encourage savers and get a balance where banks loan the money they have and buyers spend what they have and not what they may gain in the next house inflation
- Terry, Hennebont , France, 05/02/2009 12:23
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BROWN OUT.
HE IS A DISGRACE. I AM FED UP WITH BEING PUNISHED FOR SAVING.
- Chris H, City, 05/02/2009 12:18
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