While some firms engaged in advising on the UK savings market have been urging savers to act quickly to take advantage of competitive rates of interest, it is clear to them that savers have been experiencing problems trying to apply for the bonds and are frustrated with the process.
Savers, especially those that rely on their savings income, have been hit hard in recent years, with interest rates plummeting to record low levels and incomes dwindling, as the number of cuts to savings accounts has continued to rise, even with no movement in the Bank of England base rate in almost six years.
It is encouraging that the government has recognised the plight of savers, especially pensioners, but more needs to be done. Competition in the savings market remains flat, as many providers appear to have little to no desire to raise funding from savers in the form of competitive rates. This will not be helped by the recent extension of the Funding for Lending Scheme, albeit for SME lending only, for another year. The Funding for Lending Scheme has been the catalyst for falling savings rates, with best buy rates halving since its launch, and over 2,500 existing savings rates being cut. While this kind of activity has previously been a rarity outside a change in the Bank of England base rate, now it seems to be the norm.
Competition
Despite these bonds only being available to those aged 65 and over, they may encourage some much-needed competition among banks and building societies, to help them to keep hold of their existing savers’ deposits and not lose out to large-scale movements of cash to NS&I. Nationwide Building Society reacted to the impending launch with a warning to Mr Osborne that the new bonds may hurt bank deposits and affect mortgage lending as a result. From a saver’s point of view, this could be a good thing should banks and building societies improve their own savings rates in response. With a potential £10bn piling out of the banks and building societies and into NS&I, providers may react if they want to hang onto this cash. However, £10bn is less than 1 per cent of the total of over £1tn in savings accounts, according to BoE statistics, so perhaps an all-out rate war between providers would be expecting too much.
