New research has shown that the misery for savers, already battling low interest rates and rising inflation, continues, as interest rates are cut further and savings accounts disappear at an alarming rate.
Figures from Moneyfacts have shown that in November alone, 191 savings accounts were withdrawn from the market, over half of the total number for 2012 as a whole; whilst those accounts which have remained open have seen dramatic rate cuts.
Funding for Lending Scheme to blame
Moneyfacts figures show that during 2012 the number of savings accounts on offer has reduced by 15%. However, the pace of account withdrawals has speeded up over the past few months, following the government introduced the Funding for Lending Scheme (FLS).
The FLS has made up to £60 billion of cheaper money available to banks and building societies, which was supposed to improve access, for both individuals and businesses, to finance. However, many experts believe that the scheme is not working, with interest rates falling, but only for those people who could already get a loan and little evidence of increased access to finance for people who could not previously secure borrowing.
Furthermore the introduction of the FLS has had a significant impact on the savings account market. The FLS has provided banks and building societies with a cheap source of wholesale finance, meaning they need to rely less on savers deposits for fund their lending and can therefore reduce interest rates, or in many cases, withdraw accounts completely.
Sylvia Waycot, of Moneyfacts, said: “Moneyfacts research shows the devastating effect that the Funding for Lending Scheme is having on savings and there seems to be no sign of any let-up in the misery that is sure to be inflicted on the nation’s savers,” she said.
“Providers are no longer just cutting savings rates as they were a month ago, they are now pulling entire products as they find that constantly reducing rates is not enough to remove them from ‘best buy’ tables.”
‘Perfect storm’ for savers
The withdrawal of so many savings accounts will worry savers, who are struggling to beat inflation and get a ‘real return’ on their savings. Out of 2,038 savings accounts available, just over half, 1,255 beat bank base rate of 0.5%, with only a handful beating current levels of inflation.
Savers are now facing a ‘perfect storm’ of rising inflation, falling interest rates and account closures, meaning that it is harder than ever to get a real return and maintain the buying power of capital.
To beat inflation a nil rate tax-payer needs to tie up their savings in a one year fixed rate bond, or longer, a 20% tax-payer needs to use at least a three year fixed rate bond, however higher rate tax-payers have no savings options which will allow them get a real return.
Savers using Cash ISAs (Individual Savings Accounts) fair a little better, there are currently a number of options including instant access Cash ISAs, which beat inflation.
The misery for savers is likely to continue as the effects of the FLS will continue for some time to come. with banks and building societies having an 18 month window to borrow from the scheme and up to four years afterwards to lend the money out.
Our team of Independent Financial Advisers in Nottingham are experienced in making savings and investments work harder for you. If would like advice on how to get your savings or investments to beat inflation call one of our IFAs today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org