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Savings: budget was bad news for beleaguered Brits Savings: budget was bad news for beleaguered Brits
(2 days later)
It's a truly miserable time to be a saver in the UK, and several pieces of news this week suggest the bleak conditions will endure for some time.It's a truly miserable time to be a saver in the UK, and several pieces of news this week suggest the bleak conditions will endure for some time.
On budget day the government-backed savings provider National Savings & Investments (NS&I) announced that it "does not anticipate being able to return index-linked savings certificates to general sale in 2013-14."On budget day the government-backed savings provider National Savings & Investments (NS&I) announced that it "does not anticipate being able to return index-linked savings certificates to general sale in 2013-14."
This removes the faint hope that NS&I might have thrown a lifeline to desperate income-seekers by launching a new wave of the certificates, which historically have paid interest equal to the RPI measure of inflation plus an average of 0.5%.This removes the faint hope that NS&I might have thrown a lifeline to desperate income-seekers by launching a new wave of the certificates, which historically have paid interest equal to the RPI measure of inflation plus an average of 0.5%.
Andrew Hagger of MoneyComms calls it "another kick in the teeth for savers who will see inflation take a bigger chunk out of their already meagre savings returns during the remainder of 2013".Andrew Hagger of MoneyComms calls it "another kick in the teeth for savers who will see inflation take a bigger chunk out of their already meagre savings returns during the remainder of 2013".
Chancellor George Osborne brought further bad news in the budget when he said the Treasury and the Bank of England are "actively considering" whether to extend the Funding for Lending (FFL) scheme to further boost mortgage lending. But the unintended side effect of FFL is that banks and building societies no longer need to raise money from savers' deposits because their coffers are swollen with all that FFL cash.Chancellor George Osborne brought further bad news in the budget when he said the Treasury and the Bank of England are "actively considering" whether to extend the Funding for Lending (FFL) scheme to further boost mortgage lending. But the unintended side effect of FFL is that banks and building societies no longer need to raise money from savers' deposits because their coffers are swollen with all that FFL cash.
As a result, significant rate falls have hit almost all savings products and an extension to FFL will do little to encourage savings providers to increase their rates.As a result, significant rate falls have hit almost all savings products and an extension to FFL will do little to encourage savings providers to increase their rates.
Not only have savings rates slumped by about 35% since FFL was introduced, but inflation is now adding greater pressure on savers' returns.Not only have savings rates slumped by about 35% since FFL was introduced, but inflation is now adding greater pressure on savers' returns.
Inflation crept from 2.7% to 2.8% in February 2013, meaning basic rate taxpayers now need to find a savings account paying at least 3.5% a year to get a return, while a higher rate taxpayer needs to find an account paying at least 4.66%. Out of the near 900 products on the market none currently pay that, and there are only five cash Isas that beat inflation at the time of writing.Inflation crept from 2.7% to 2.8% in February 2013, meaning basic rate taxpayers now need to find a savings account paying at least 3.5% a year to get a return, while a higher rate taxpayer needs to find an account paying at least 4.66%. Out of the near 900 products on the market none currently pay that, and there are only five cash Isas that beat inflation at the time of writing.
Anna Bowes, director of Savingschampion.co.uk, says the budget was "a travesty for savers". "With inflation above target and expected to rise this year, there is certainly no light at the end of this tunnel for the beleaguered saver. It looks as though FFL is going be a cross for savers to bear for quite some time."Anna Bowes, director of Savingschampion.co.uk, says the budget was "a travesty for savers". "With inflation above target and expected to rise this year, there is certainly no light at the end of this tunnel for the beleaguered saver. It looks as though FFL is going be a cross for savers to bear for quite some time."
All of the above means that while the government might be helping first-time buyers, beer-drinkers and shale gas engineers, Britain's savers continue to suffer. Many may well be forced to look at riskier assets in order to extract a decent income from their capital.All of the above means that while the government might be helping first-time buyers, beer-drinkers and shale gas engineers, Britain's savers continue to suffer. Many may well be forced to look at riskier assets in order to extract a decent income from their capital.
Perhaps the only thing that might make it worse would be if the government were to snatch 10% from Britons' savings pots in a Cyprus-style raid. Then it would definitely be the worst ever week for savers.Perhaps the only thing that might make it worse would be if the government were to snatch 10% from Britons' savings pots in a Cyprus-style raid. Then it would definitely be the worst ever week for savers.
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