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Relentless Interest Rate Cuts are a Deterrent to Savers

Personal_Finance / Savings Accounts Sep 13, 2016 - 12:41 PM GMT

By: MoneyFacts


Data from can reveal that rate reductions in the savings market have now outweighed rate rises for eleven consecutive months and that August has officially become the worst month this year for cuts.

In August, Moneyfacts recorded three savings rate rises. Disappointingly, rate reductions over the same period completely outshone this figure, with the number of rate decreases standing at a staggering 388, which translates as around 130 cuts to every rate rise, and some deals fell by as much as 1.30%.

While this is certainly depressing news, at least savers’ precious funds won’t be greatly affected by inflation: inflation statistics released today show that the Consumer Prices Index (CPI) stuck at 0.6% during August, which means savers have little to worry about in terms of savings erosion. Unsurprisingly, the vast majority (459) of the 661* savings accounts currently on the market can beat or match inflation, and of these 430 (48 no notice, 37 notice, 203 fixed rate bonds and 142 cash ISAs) are without restrictive criteria. With rates plummeting due to the base rate change, it’s unsurprising that there are now very few easy access accounts providing a return above inflation.

Rachel Springall, Finance Expert at , said:

“Savers are clearly facing challenging times, but more bad news is to come. The latest decision to drop the bank base rate and the impact of government lending initiatives will continue to push rates lower still – there is no end in sight. Providers are lacking an appetite for savers’ deposits thanks to these initiatives, which are not likely to be reversed any time soon.

“Some of the cuts made during August were well over what was initially expected, with some deals cut by as much as 1.30% for new customers - over five times the base rate cut. These higher cuts have not gone unnoticed, as the Financial Conduct Authority (FCA) are to investigate what lenders are passing on to their borrowers and what cuts are being made to savings rates.

“It’s not just rate cuts that are causing distress among savers; some of the best deals have cruelly been withdrawn entirely so that providers can cope with demand. A total of 20 top ten deals vanished since the start of August, which is why it’s crucial for smart savers to be even faster at grabbing a decent deal.

“Unsurprisingly, these devastating cuts have pushed savings rates to new lows. For example, the average five-year fixed rate bond has fallen from 2.64% to 1.66% in just one year and the average easy access ISA has fallen from 1.12% to 0.82% in the same period.

“Consumer confidence in the savings market is diminishing** as more people are spending rather than saving during these uncertain times, showing that relentless rate cuts are a deterrent to savers. Some savers may even start to ponder on whether to invest their cash in more risky places as a result. Regardless of where savers decide to stash their cash, they must be sure they are fully aware of the potential dangers.”

*Data Note: Please note that the savings product numbers only include deals that are available to all UK residents. Moneyfacts has chosen not to include products that have limited access, such as locals-only, high net-worth clients or linked products which mean you must have an existing account to obtain headline rates. Moneyfacts has taken the view that as these accounts are not available to your entire readership, their inclusion may be misleading to your readers by directing them to accounts they may not be entitled to. We do, of course, hold all of this data should you require it. Our daily Moneyfacts savings rate monitoring started in July 2015 and is a record of live standard savings account changes, which include fixed rate bonds of all terms, all ISAs, notice accounts and no notice accounts.

**According to the UK Consumer Confidence Index, published by GfK 31.8.16. - The Money Search Engine is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.

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