A new report has found balances in UK savings accounts have risen by 5.5% over the past year, despite best buy savings interest rates plummeting.
Even though stock markets have risen significantly over recent months, the figures from the British Bankers Association (BBA), clearly demonstrate the desire for capital security is still uppermost in saver’s minds. It is also clear that interest rates are not yet at a level where the majority of savers are tempted to become investors.
David Dooks, Statistics Director at the BBA, said: “Low consumer confidence is depressing demand for new borrowing and consumers are continuing to save, with deposits rising by 5.5% over the year to April.”
The UK’s banks and building societies now hold £721 billion of savers money, much of it in savings accounts paying an interest rate below inflation.
Since the credit crunch, subsequent financial crisis and the reduction of Bank of England base rate to 0.5%, savers have found it hard to get a real return on their savings accounts. The introduction of the Funding for Lending Scheme (FLS) last year, was the catalyst for banks and building societies to further reduce interest rates, making it even harder to find a savings account which pays an interest rate above inflation.
At present there is only one account which will give a basic rate taxpayer sufficient interest, after tax has been deducted, to beat inflation. This account is offered by the Bank of London & Middle East, requires the saver to tie up their money in a five year fixed rate bond and has very high minimum deposit of £500,000; out of reach for most savers. Click here to see which Cash ISAs beat inflation.
Financial experts warn that inflation is the hidden enemy of savers, quietly eroding the true buying power of capital, despite savers seeing a nominal rise each year as interest is added to the existing capital.
Indeed, responding to this week’s figures, which showed a slight slowdown in the rate of inflation, Simon Rose of Save our Savers: “Inflation is a tax in all but name, stealthily taking money from our pockets with the connivance of the government. The Bank of England has consistently failed to keep it under control and, admitting it will be above target for another two years, it risks losing any credibility it has left. In the meantime, hard-pressed British families and pensioners will find it ever harder to pay for the essentials of life.”
Borrowers also cautious
This cautious approach has also been reflected in unsecured borrowing figures, which showed a 6.7% reduction in the level of overdrafts and secured loans. Mortgage lending was also down slightly on previous months.
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