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Savings rates: where to put your cash
Banks aren't making it easy for savers to make a return on their money. Here's what you can do about it.
by Michelle McGagh on Nov 09, 2012 at 12:05
Savers looking for even a half-decent return on their money haven’t had it easy recently, and the bad news is it’s only going to get worse as banks are cutting interest rates and withdrawing offers.
The situation has got so bad that no new easy-access accounts currently keep pace with inflation, according to the Savings Champion website, which helps savers track changes in rates and gives recommendations on where to move your money.
The recent high point for easy-access savings accounts was June and July this year, when a rate of 3.25% was being offered against inflation of 2.4% in June and 2.6% in July, based on the consumer prices index (CPI).
Although the good news is that inflation has fallen further, currently sitting at 2.2%, savings account rates have followed suit, with the best easy-access account now paying just 2.5%.
Why have rates dropped so low?
It is in banks' interest to attract savers’ money, as they use this money to lend to others and make more on it than they are paying out.
However, since August the banks have had access to the Funding for Lending scheme. This scheme was set up by the Bank of England and the Treasury, and sees £80 billion of taxpayers' money being made available to banks as long as they lend it to people who are struggling to get mortgages.
Although the scheme has helped some homeowners, it has had a direct correlation with falling savings rates. As banks have less need for savers' money to lend out, there is no rush to entice savers with high interest rates.
Anna Bowes, director of the Savings Champion website, said although the banks deny that the rate cuts are due to the access to £80 billion of taxpayers’ money, rates have been falling since August.
‘We were concerned that [with the introduction of the Funding for Lending scheme] savers were going to get hammered. We had seen a race to top [with rates], but now the opposite has happened,’ she said.
Bowes added that it was new customers who are being affected most; for example, the fifth issue of the Santander eSaver easy access account was paying 3.2%, but the ninth issue is paying just 1.5%.
‘In June and July the highest easy access saving account paid 3.25%, that was from Coventry Building Society. But the best rate you can take out now is with Ulster Bank with 2.65%, although there are restrictions on withdrawals. If you want a normal easy-access account then the highest you can get is 2.5%,’ she said.
Bowes urged savers to read the terms and conditions of accounts before signing up as many of the higher rates hve restrictions on withdrawals.
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