Low interest rates have hit diligent savers

After I had mumbled to my computer that “you can’t launch ‘old’ accounts”, I glanced at the interest rate. It was a less than fantastic 1.15 per cent. Mind you, this is more than double the average 0.46 per cent the Bank of England says was being earned on variable rate cash Isas in December. 

This was another record low and was the first time the average cash Isa rate both including and excluding bonuses was less than half a per cent.

Outside of Isas, the average rates hit a record low of 0.13 per cent without bonuses and 0.15 per cent with bonuses

Outside of Isas, the average rates hit a record low of 0.13 per cent without bonuses and 0.15 per cent with bonuses. So that makes £130 a year on £100,000 of savings.

No wonder the savings market is gripped by torpor. Interestingly, while cutting savings rates to record lows, banks and building societies have been gradually raising their lending rates.

The average credit card is now 17.96 per cent, which is the highest it has been since February 2014. Personal loan rates, at 19.71 per cent, are at their highest since July 2010. My mother-in-law recently asked me to look at her cash Isas. But I am not sure it would be worth us investing the time.

Any extra interest we could generate might just about buy us coffee and cake in John Lewis – and that is hardly a treat because the cake is always dry. We are promised a National Savings & Investments bond this year that will pay 2.2 per cent on sums up to £3,000 for three years.

While the interest rate knocks the competition into a cocked hat, the maximum amount is hardly likely to set the pulses of grannies racing. And it is grannies and granddads who continue to suffer most from the lack of enterprise and competition in the savings market.

The young are often borrowers and have the long-term horizon that allows them to plunge into the stock market. The wealthier, likewise, have been able to generate substantial returns from the stock market over the past few years.

But those with limited resources who feel they cannot afford to take a risk with their savings have suffered for year after year since the credit crunch. They have even had to put up with snide comments from highly pensioned Bank of England officials suggesting they should dig into their savings.

Theresa May has once again been outlining her priorities to help those who feel passed over. I would like to think that those who have saved diligently from limited wages to build a small retirement pot are on her checklist.

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Penalising the infirm 

As pensioners scramble for income, the equity release numbers can be expected to rise inexorably. The good news is that rates are falling. The bad news is that many pensioners are trapped in what are effectively high-interest loans for life.

Moneyfacts shows the best equity release fixed rate coming in at less than 5 per cent, with the average at 5.66 per cent – enough to gain envious looks from those paying more than 7 per cent or, in the worst cases, 8 per cent-plus.

Given that these are lifetime loans, the potential savings for remortgaging are now enormous – but as we know, the penalties can be pretty stiff.

What is of equal concern is that some new loans still have unnecessarily complex exit penalties linked to gilt rates. 

In my humble opinion, such penalties have no place in the equity release market where borrowers are more likely to lose faculties or relatives may, though a power of attorney, have to take over responsibility for decision-making.

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The DB liability trap

Andrew Pennie, marketing director at Intelligent Pensions, warned recently that relaxing the rules governing defined benefit transfers was “fraught with dangers”. Those who benefit from defined benefit must, without doubt, be protected from the pirates who would plunder their pensions for personal gain. 

But, equally, we must recognise the right of some people to gain access to smaller pots without paying for advice that could make a considerable dent in their savings. Is the £30,000 limit too low? Perhaps. In certain circumstances.

But there is also the question of financial advisers feeling able to do their job and give considered advice without fear of future liability hanging over them.

This is an area that needs deep consideration. Any changes to the rules should consider how advisers can be placed in a position that would enable them to put their client first rather than having to consider the potential long-term effect on themselves or their business.

Protection of the consumer versus their individual rights is a difficult balancing act. Finding the right balance here could be particularly tough.

Tony Hazell writes for the Daily Mail's Money Mail section