Record low interest rates hurt the retired and savers
Interest rates have fallen to new record new lows, after cuts to hundreds of accounts in recent months.
Analysis for BBC News showed that many people who rely on their savings income, are worse off than ever before!
But how do you make the best of your money combatting these Low Interest Rates.
Our Knutsford IFA can guide you through this minefield.
Understanding Record Low Interest RatesSavings rates plummeted after the Bank of England slashed its base rate to 0.5% following the market turmoil in 2008. Since last September, the economic outlook has worsened and they rates fallen again.
Fixed rate bonds, easy access accounts and ISA’s are all at or near their lowest points on recordMoney
In research carried out for the BBC, firms recorded 1,440 savings rate cuts last year and more than 230 so far this year.
While low interest rates are welcomed by mortgage borrowers, those at or near retirement who had hoped that income from their nest eggs would help pay the bills, have been left with limited places to go to get a good rate on their savings.
“Never mind a light at the end of the tunnel, I can’t even see the tunnel at the moment” says 68-year-old Alan Thompson, one of a group of ramblers from Warrington who depends on his savings.
“Like most retired people, there was a plan and suddenly it’s not like it was anymore. My pot is disappearing.”
“It’s helping young people buy houses, but it’s not helping me,” he said.”
The fall to these low interest rates is across the board, with significant reductions from National Savings & Investments, Bank of Scotland, NatWest and Nationwide Building Society.
The average return from the five best easy access accounts has dropped from more than 3% in 2012 to under 1.3%.
Tax-free ISA rates are at their lowest ever. The average variable rate ISA is down to 1%, while a typical fixed-rate Isa pays 1.4%.
Pension age rise
Another Warrington rambler, 63-year-old Peter Smith started dipping into his savings when he discovered he would have to wait for his state pension.
Some rates of return are so tiny that savers can improve their situation by switching to a better offer.
First Direct pays just 0.05% to customers in its Savings Account, while Santander has an Easy Isa with an interest rate of a mere 0.1%.
Anna Bowes, director of Savings Champion, traces the problem back to a decision by the previous Coalition government to supply banks with cheap money to boost their lending.
“The competition between providers has been sucked out of the market,” she explains, “They just don’t need to raise money from savers any more, which has had a devastating impact.”
A spokesman for the British Bankers’ Association said: “These have been frustrating times for savers. The Bank of England’s base rate has remained at a record low for several years.
“While this has been good news for borrowers, it has fostered a low-interest-rate environment which has not been easy for many savers to bear.”
The looming EU referendum has confused the outlook for savers, with George Osborne warning borrowers that a vote to leave could lead to higher interest rates and others speculating that uncertainty could prompt the Bank of England to cut its base rate again.
Behind the scenes, senior bankers warn that very low savings rates are likely to be the “new normal”, given the precarious economic situation across the world.
If you find yourself in this situation, there are alternatives that are only available via advice. Contact our independent financial planners today, to see how you can get back the lost income from falling rates on the high street.
This blog is for information purposes only and should not be relied upon for advice. Speak to one of our Knutsford financial advisers before moving any savings to new investments, as valuable tax breaks may be lost. Knutsford financial planning is essential if you are going to get the best from your savings.