Beleaguered savers received another blow yesterday as the innovative savings provider, Governor Money, stopped accepting new deposits, blaming a “disastrous” fall in interest rates on the best buy savings accounts as a result of the government’s Funding for Lending Scheme.
Launched in April 2011, Governor Money is owned by Family Investments. Their ‘one stop shop’ approach was innovative, giving savers access to a range of banks and building society products, including Cash ISAs, through one account. The intention was to reduce paperwork and make life less complication for whilst offering competitive interest rates.
For a while Governor Money topped the best buy savings account tables. However, it seems that Governor Money has been hit by the massive drop in interest rates seen since the launch of the Funding for Lending Scheme (FLS). The lack of competitive savings accounts meant that Governor Money has been unable to source sufficient exclusive deals and has therefore had to close to new business.
Miles Bingham, Chief Executive of Governor Money, said: “The Governor Money proposition was truly innovative and unique, so it is disappointing that we are having to take this measure”
“However, given the current savings environment and the reluctance of banks and building societies to offer appealing rates to savers, this has made Governor’s continuation unviable.”
Funding for Lending Scheme
The FLS is designed to provide banks and building societies with a cheap source of finance, which they can then lend on to individuals and businesses in the form of mortgages and loans.
The aim of the scheme is to reduce borrowing costs and make finance more accessible to those people or businesses who could not previously get access to loans. However, despite some recent evidence that the scheme is starting to reduce borrowing costs and may be improving the access to mortgage products for some people, it has meant banks and building societies have been able to slash their savings rates, as they now have access to a far cheaper source of funding.
Existing savings are protected
Understandably existing savers with Governor Money are likely to be nervous and their savings accounts are safe, however Miles Bingham, was quick to reassure customers, saying: “I would like to reiterate that our customers’ money is completely safe and that no action is required from them.”
Bingham continued: “They will still enjoy the high rates of interest associated with each purchase, continue to benefit from the FSCS protection of our supporting deposit takers and withdraw funds to their nominated bank account in the normal way upon maturity.”
Furthermore, existing customers of Governor Money will continue to get the interest on their accounts promised when they were opened, with fixed rate accounts maturing as planned.
However, customers were warned against closing accounts early as this could lead to a loss of interest, indeed many accounts do not allow early access and not to withdraw money from Cash ISAs as this would reduce the tax efficiency of their savings.
‘Perfect storm’ for savers
The withdrawal from the market of such an innovative solution to many of the issues facing savers will only heap further pressure on this already hard pressed group, many of whom are facing a ‘perfect storm’ of falling interest rates and rising inflation; making it almost impossible to get a real return on their savings.
Unfortunately for savers as the economy continues to struggle, meaning the Bank of England can’t raise interest rates and banks and building societies continue to repair their balance sheets, whilst taking advantage of the FLS, there is little hope that the situation will improve as we head into 2013 and perhaps even beyond.
Our team of Independent Financial Advisers in Nottingham are experienced in advising savers on their cash options, if you would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org