Base rate increase fails to deliver for the majority of UK savers¹
When the Bank of England Monetary Policy Committee announced that bank base rate would increase from 0.50% to 0.75% on 2nd August 2018 it must have been music to the ears of hard-pressed savers up and down the country.
But more than two months later the reality for many account holders is that they have once again been let down by their banks and building societies, with only 17% of savings accounts passing the full 0.25% increase on to their customers.
The average easy access savings rate on a cash account balance of £1,000 now sits at 0.60% up just 0.11% from the start of 2018, hardly the impact the Bank of England and UK consumers had been hoping for.
Bank base rate is now at 0.75%, the highest since February 2009 but the market remains subdued, with only 119 out of a total of 295 variable rate savings accounts paying a return above this benchmark.
Even more concerning is that there are still 34 variable savings accounts paying a pitiful rate of 0.1% or less despite base rate increasing from 0.25% to 0.75% since November 2017.
In the last decade following the financial crisis, it’s been savers who have had to put up with rock bottom cash savings rates while mortgage customers benefitted from ultra-low borrowing rates as the government tried to boost the UK economy.
It’s not just the low rates that have been an issue for savers, but they’ve suffered a double whammy with high inflation rates too.
Even if you lock your money away for five years in a fixed rate savings bond the average return is just 2.19% - still not enough to keep pace with inflation which currently sits at 2.40% (CPI September – source ONS).
With the average variable savings rate paying just 0.60% and inflation at 2.40% it means that the spending power of savings balances is decreasing.
To put it into perspective someone with £2500 in their savings account paying an average 0.60% will earn £15 per year in interest before tax, but with inflation at 2.40% costing them £60 they are in effect losing £45 per year.
Who would have thought that ten years after the financial crisis that savers would still be getting a raw deal?
It’s no surprise that savers are at their wits end and exploring other avenues to try to earn a better return on their nest egg.
About Andrew Hagger & Moneycomms
MoneyComms was founded in 2012 by respected personal finance commentator Andrew Hagger.
With more than 30 year’s experience working for personal finance brands including Barclays, Virgin Money, Moneyfacts and Moneynet, Andrew uses his wealth of industry knowledge to help people understand what’s good and what’s not so special about some of the latest money products. A frequent spokesperson on radio and television, Andrew wrote a weekly column in The Independent for six years before it closed and now writes for The Daily Mirror and a number of personal finance websites. UK personal finance journalists voted Andrew ‘Best Price Comparison PR’ in 2009, 2010, 2011 and 2012 at the prestigious Headlinemoney awards.
¹Basset & Gold commissioned Andrew Hagger of MoneyComms to conduct research into the cash savings market. The research was conducted on 18th and 19th October 2018.