Everybody needs to have a little cash tucked away in a bank or building society, just in case of a financial emergency.
It is fair to say that such prudent cash saving is currently not richly rewarded: a result of a low interest rate backdrop and – although a decade has passed – the continued fallout from the wicked 2008 financial crisis.
Although the last move in the Bank of England base rate was cheerfully upwards, it looks as if a combination of Brexit/no Brexit/political meltdown and the possibility of a global recession – triggered by continued squabbling on trade issues between China and the US – will choke off any further increases.
Indeed, recent events suggest that if there is an adjustment to the base rate, it will be downwards not upwards. Savers, it seems, will continue to grumble into their morning bowls of porridge. They are the sacrificial lambs of a decade scarred by austerity.
In recent weeks, a number of banks and savings organisations have behaved as if a base rate cut is now a dead cert. Goldman Sachs has lowered the interest rate on its popular Marcus instant access account to 1.45 per cent from 1.5 per cent, while Lloyds Bank – not renowned for giving savers much to cheer about at the best of times, has cut its Instant Cash Isa rate to 0.2 per cent from 0.35 per cent.
In response to these moves, Andrew Hagger, savings expert at financial website MoneyComms, warned that the interest rates on some easy access accounts could be “heading towards zero or pretty close”.
Given some banks are already offering a meagre 0.15 per cent (for example, HSBC Flexible Saver), it is hard to argue against Mr Hagger. Savings misery will rule for a lot longer yet.
But probably the biggest signal on where we are heading on savings rates has come from government bank National Savings and Investments – a financial institution much loved and much used by financial advisers on behalf of clients, but one that is no more than a financial tool of the government.
NS&I has just withdrawn from general sale its one and three-year Guaranteed Income Bonds and Guaranteed Growth bonds, justifying the move on the grounds that the bonds have become too expensive to offer.
Currently, the government can obtain cheaper finance on the money markets (through the issuing of gilts) and when it can do this, it discourages NS&I from raising too much money from retail savers.
At the end of the day, NS&I is duty bound to strike a balance between the interests of its customers (25m of them) and taxpayers, while ensuring at all times the stability of the broader financial services sector. In other words, it must not offer savings rates that the banks and building societies cannot compete against.