Savers hit by decision to hold interest rates

Savers were dealt another blow on Thursday when the Bank of England decided to hold the base rate at its historic low of 0.5 per cent for the twelfth consecutive month in a row.

Analysis carried out by financial website Moneysupermarket.com revealed that leading savings rates are now lower than they were at the end of March last year, even though the base rate has remained the same.

The research also found that the average rate for the top five easy access accounts has dropped from 3.02 per cent to 2.86 per cent, while the average of the best individual savings accounts has fallen from 3.39 per cent to 2.83 per cent.

“There is no doubt that savers have been the biggest losers during the past twelve months, with rates dropping dramatically,” said Kevin Mountford, head of banking at moneysupermarket.com. “This coupled with recent rises in inflations has meant that it is almost impossible to gain a real rate of return on your saving pot.”

He said savers are being battered from all sides because as well as rates continuing to fall, rising inflation is also hurting them.

However, there has been some good news for savers. While rates on easy access accounts and cash Isas are lower than they were a year ago, fixed rate bonds are actually higher. The average of the top ten fixed rate bonds is now 4.91 per cent, up from 3.99 per cent.

“Savers really do need to be on their toes in the current market as lenders chop and change their rates. If you want the best rate then you really need to shop around,” said Mr Mountford.

Meanwhile, the decision to keep the base rate at 0.5 per cent has helped some borrowers but not all. The average of five best unsecured rates on a £3,000 loan has increased from 13.67 per cent to 14.92 per cent in the last year, triggered by tighter lending criteria introduced by the banks. This figure stood at 7.58 per cent in 2007 when the base rate was as high as 5.25 per cent.

“There was a time that a personal loan was the perfect solution for anyone looking to borrow to buy a car or consolidate existing debts,” said Tim Moss, head of loans at moneysupermarket.com. “Unfortunately the personal loan market has changed beyond all recognition with rates shooting up and borrowing for relatively small amounts becoming uneconomical.

“Many lenders have closed their books completely to consumers looking for a loan while others will only accept customers who have existing banking relationships. The last twelve months has not been kind to borrowers looking for a loan and there is little sign of this changing in the near future.”

The real winners are those mortgage borrowers who had tracker mortgages which they had taken out before rates started to fall in October 2008. The rates on these deals have tracked the base rate down and pulled down payments.

The total number of mortgages on offer, however, has decreased from 3,150 to 2,716 and even those who are able to access a deal with a loan-to-value of 90 per cent will still need to pay an annual percentage rate of 6.05 per cent.

“Borrowers need to be wary,” said Hannah-Mercedes Skenfield, moneysupermarket.com’s mortgage manager. “As some lenders have introduced products with low headlines grabbing rates only to charge higher fees which make the mortgage less competitive compared to products with higher rates.”