Don’t expect savings rates to rise, savers told

http://www.theguardian.com/money/2015/jul/19/savings-rates-bank-of-england

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For the first time in years things are looking up for savers. Or are they?

Last Thursday Mark Carney, the governor of the Bank of England, indicated that interest rates would rise as early as December. This should be good news for savers who have witnessed rock bottom returns over a six-year period in which the Bank base rate has stayed at 0.5%. But this might not bring a correlating rise in the rates paid on savings accounts.

“The traditional relationship between the Bank of England base rate and savings rates has been severed for some time, and we don’t think it will necessarily be restored,” says Anna Bowes of savingschampion.co.uk.

While savings rates started to fall as the base rate came down pre-2009, this continued in subsequent years despite there being no further central change. These cuts increased dramatically from summer 2012 when the governement introduced the Funding for Lending scheme, which meant banks no longer needed to rely on savings deposits for capital. Just before the scheme started the best easy access account paid 3.25%; now it is 1.6%.

As a result of the uncertainty over the future of savings rates, Bowes suggests savers take advantage of the best rates on offer now rather than playing the waiting game. “We still advocate the need for a balanced portfolio with some money in savings accounts where the rate is fixed for as long as five years, as well as some in instant access accounts,” she says.

For those looking for a fixed rate, things have improved over the past few weeks thanks to the so-called challenger banks. Last Friday Paragon launched the best-buy one-year fixed-rate bond paying 2.07%. For the longer term, My Community Bank pays 2.75% over three years, and Paragon pays 3.06% over five years. For instant access, BM Savings, part of Halifax, has upped its best-buy rate to 1.6%.