We have been tracking the volume of rate movements in the past year or so. Even though the base rate has not moved for almost four years, savings rate cuts for loyal savers are getting more frequent.
Over the summer, months went by without a single cut. Then – bam. The rate slashers got braver in October and November, cutting more rates on more accounts for existing customers – and by larger amounts. This January, the number of cuts touched 100 and there is no indication of things slowing down.
Rate cutters are getting more daring. January 2012 saw the average cut at just 0.35 per cent, with the largest cut 0.49 per cent. The average cut for January this year is up to 0.40 per cent and the largest is a full 1 per cent.
No doubt the banks and building societies defend themselves by saying they are just bringing their rates in line with market trends. Frankly, that is a hard pill to swallow. They know they have savers over a barrel and that most do not even know what rate they receive. Even the most eagle-eyed rate hunter may have trouble keeping up.
M&S Bank, Intelligent Finance and the Post Office recently joined the slash-and-burn spree. At least M&S Bank is giving plenty of notice. Rate cuts are scheduled for 12 April. But these come off the back of cuts last month, from 2.35 per cent to 1.35 per cent for new customers. Come April, every M&S Everyday saver will suffer a further 1 per cent cut, leaving new M&S Everyday savers receiving just 0.35 per cent. And that, as we all know, is lower than the Bank of England base rate. It is also less than you can earn on some current accounts and is certainly less than inflation, currently running at 2.70 per cent.
Government
There is an easy explanation why savings institutions are now turning their backs on new and loyal customers. The culprit is the government’s Funding for Lending Scheme.
The £80bn scheme was introduced to ease the credit squeeze suffered by personal and business borrowers. However this has meant that savings providers are now so awash with cash they simply have no need or desire to raise money from savers.
But what we do spy is a little more activity on the mortgage front – although, admittedly, that is not our area of speciality. From our side of the fence, it looks like some lenders are keen to get the mortgage market going again with new deals to entice home movers and first-time buyers, providing they come up with a suitable fee and hefty deposit.
So what has this got to do with savings? Well, it just so happens that the biggest takers of FLS cash happen to be among our largest savings institutions. Access to cheap money means they are under less pressure to keep savers sweet. So they cut rates – and everyone else follows.
Rate levels will remain depressed for some time. While we all wait to find out what rabbits the new Bank of England governor Mark Carney will pull out of his hat, I think it is fair to say that BoE rates will not rise before the end of the year. In fact, they could remain low for much longer than that. Citibank predicts no rise before 2017, according to recent press reports.
But back to the here and now. Since FLS came in, 164 account rates have been cut. The number of competitive players has shrunk. Just two standard-variable Isas pay more than inflation. Even so, the real return on Coventry’s Isa is just 0.10 per cent, a margin so low that it is unlikely to provoke a mass stampede among British savers.
For ordinary savers, keeping track is made harder as many institutions do not tell them when rates have fallen. Only if you visit a branch, ring their call centre every week (which would be weird) or have their website as a homepage (weird too) are you likely to notice every rate change.
At least some institutions are bucking the rate-cut trend with a smattering of good news. Coventry Building Society is planning to raise its easy-access variable-cash Isa rate to 2.50 per cent in the new tax year. What is more, 250,000 members will benefit from this rise.
National Savings & Investments, however, set the tone for Coventry to follow. It announced plans for 94,000 holders of NS&I Cash Isa and Cash Isa T (as in ‘T’ for Tessa) accounts, who currently receive a miserable 0.50 per cent and will do until 25 May. They will be transferred to NS&I’s far more attractive Direct Isa from that date, which currently pays a competitive 2.25 per cent.
The cynic in me would say that Coventry’s rate may not last if current trends are anything to go by. It would also say that NS&I Direct Isa rate could tumble in the not-too-distant future. But at least the moves are a step in the right direction and let us hope, even if it may be wishful thinking, that more providers follow their lead.
Isa
As the Isa statements are due to drop onto savers’ doorsteps in the coming months, perhaps rather than focussing on gaining new customers, some providers may simply try not to lose them. This would be great news for the millions of savers who never get around to switching their old savings accounts.
Despite these welcome exceptions, the picture is pretty grim. Yet there are simple actions savers (and their advisers) can take to make the best of a bad situation.
The tricky part is the “regular review”. Thankfully, the internet is coming to the rescue with proactive services that allow savers to be armed with information on the most competitive deals, so savers should be better off.
All they have to do is take action. Is it worth it? Well, the banks would rather you would not, so that should be motivation in itself. And remember, the average instant-access rate is 0.87 per cent. In fact many accounts pay 0.10 per cent or less. If you are in one of those accounts earning just 0.10 per cent, you can multiply your instant-access returns by a factor of 20 and you can do it all online. I would say that has got to be worth it.
Sue Hannums is a director of savingschampion.co.uk
Ways to secure savings
■ Regularly review all savings accounts to make sure you are aware of the interest rate that you are currently earning.
■ If you find yourself in an uncompetitive account, ditch it. If you really do not want to switch, contact your provider and see if they can improve the rate.
■ Make sure you use your unused cash Isa allowance. With rates this low, the tax-free element counts more than ever.
Key points
■ The rate slashers got braver in October and November, cutting more rates on more accounts for existing customers – and by larger amounts.
■ Some lenders are keen to get the mortgage market going again with new deals to entice home movers and first-time buyers, providing they come up with a suitable fee and hefty deposit.
■ NS&I announced plans for 94,000 holders of NS&I Cash Isa and Cash Isa T accounts to be transferred to NS&I’s Direct Isa, which currently pays a competitive 2.25 per cent
