Savers in the cold over interest rate cuts
Savers warned to move cash out of cold accounts
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Friday, 05, Dec 2008 12:55
Savers are set to see rates drop further after the Bank of England cut interest rates today/yesterday.
After the November 1.5 per cent rate cut, 92 per cent of providers passed the cut on in full or more to their savings rates.
Gordon Lishman, director general of Age Concern, also expressed concerns for savers.
"Many older people who rely on the interest from their savings to top up their income could be hit hard by these cuts, particularly as so many are already struggling to pay basic household bills," he said.
"We would urge all older savers to shop around for the best savings deal, though of course those without internet access or with limited mobility may find it much harder to do so."
Further cuts are now expected for saving rates.
James Caldwell at Fairinvestment said: "Banks are all too quick to pass the cut onto savers - last month it took just days for the 1.5 per cent cut to be shaved off saving account rates and it is expected to happen this time too."
However, banks and building societies may be reticent about freezing out savers – as they are keen to hold on to funds.
Adrian Coles, director-general of the Buildings Societies Association (BSA), explained neither mortgage rates nor savings rates are likely to drop after the interest rate cut – as banks are relying on savers for cash.
"Building societies have to balance the interests of borrowers and savers.
Although low interest rates are good news for borrowers, they are not so good for savers," he said.
"Savers will be disappointed at today’s news. Building societies which 'pass on' both this base rate reduction and the last could halve the interest which they pay to their investors in a very short period of time."
He added a large proportion of the funds invested in building societies are held by those over the age of 55.
"Building societies will wish to do what they can to protect pensioners from what will be, potentially, a very sharp reduction in their income."