Savings doomed to death by 400 cuts

Dramatic interest rates fall shows that since August a pot of £15,240 will give you 83p a year. Eighty-three pennies, ladies and gentlemen.

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During the Tory party conference, Theresa May has told she would do something to help millions of suffering savers around the country.

She said that people who save money become poorer year after year, and that changes are necessary in such a situation. She promised to do something about it, giving long-awaited hope to millions of people fed-up with low interest rates.

The issue is that the Bank of England decided it would be okay to cut the rates to 0.5%, which is a historically small number for the rates. It was in March of 2009, and it wasn’t the end, as this August the rates were cut to 0.25%, which is more than outrageous. 7.5 years of suffering may have reached its end, though.

A new research can show us how much people who save suffer from what they do for the better future. Since August, banks and building societies have slashed more than 420 rates to below 0.25%, according to research by the financial information firm Moneyfacts.

Some accounts have been chopped to zero, or to just 0.01% or 0.05%. On a rate of 0.01%, a customer using their full Isa allowance of £15,240 by saving £1,270 a month would get just 83p in interest a year.

Andrew Hagger of the personal finance website Moneycomms said: “Savers have had a raw deal for a long time but, just when they thought things couldn’t get any worse, 2016 has turned out to be a disaster.

“The Brexit vote and subsequent 0.25-point Bank rate cut have seen savings rates plummet towards zero in what has become a savings bloodbath.”

While the government mulls sweeteners for savers — a return of the high- interest “pensioner bonds”, for example, which could be rolled out to include savers of any age — we should brace ourselves for more hefty cuts in the months ahead.

NatWest customers will be spooked on Halloween when the bank, owned by Royal Bank of Scotland, reduces 10 of its rates, with some Cash Isa and Instant Saver customers seeing their interest fall from 0.25% to 0.01%. Halifax is lowering 25 rates on accounts including its Help to Buy Isa, Junior Isa, Instant Saver and several cash Isas on December 8. A dozen of them will pay less than 0.25%.

Rachel Springall of Moneyfacts said: “The banks have clearly used the Bank of England announcement as an excuse to make heavy cuts, with some slashing their rates to well below 0.25%, which is devastating news.”

The worst cuts
Who is the worst culprit when it comes to interest rate cuts? Step forward Britain’s biggest building society, Nationwide, according to the advice website Savings Champion, which looked at the number of cuts reducing interest to 0.24% or lower since August. Last month Nationwide reduced 27 of its savings accounts paying 0.25% to just 0.1% interest. Ipswich building society made a series of cuts at the start of October, 19 of which took rates to between 0.1% and 0.15%. Hanley Economic building society reduced 14 of its rates in September to below 0.25%. For those with less than £100 in the society’s Instant Access or Douglas Macmillan Hospice Saver accounts, their interest has fallen from 0.05% to an even more dismal 0.01%.

Some savers will not receive a penny in interest on their savings as their provider has slashed its rate to zero. They may as well be keeping it under the mattress.

The private bank C Hoare & Co pays 0.00% on its easy access deposit account and children’s savings account after it chopped its rates last month, according to Savings Champion. On October 18, its current account will also fall to zero interest.

Halloween shock
NatWest will join the bloodbath at the end of this month, when it slashes 10 of its rates on Halloween, five of them to below 0.25%.

Customers with less than £25,000 in its cash Isa will see their interest plummet from 0.25% to 0.01%. Anna Bowes of Savings Champion said it was a “cruel joke” that NatWest was making these changes on October 31 — and that it still advertised its cash Isa as a way to earn interest. NatWest’s website said: “Give your savings a tax-free lift. Make the most of the new tax year with our instant access Cash Isa. Your interest is tax-free, no matter how much you earn.”

But someone depositing the Isa allowance of £15,240 with the bank at the start of the tax year would receive just £1.52 interest from a 0.01% rate. If they chose to save it gradually — in £1,270 monthly chunks — their interest would be only 83p. Customers would probably ask whether it was worth the hassle.

Bowes said: “Savers have been sacrificed for too long. The cut in Bank rate has given banks a green light to cut rates further still, sometimes to virtually pointless levels. How can an account paying 0.01% be marketed as a savings account?”

Those who have more than £25,000 in NatWest’s Isa will receive a slightly higher rate of 0.05%; savers with more than £50,000 will receive 0.25%; and those with more than £100,000 will get 0.5%.

NatWest said: “In a lower-for-longer interest rate environment we’ve had to take the difficult decision to change some of our savings rates. However, we continue to encourage first-time buyers and regular savers through our Help to Buy Isa and Savings Builder accounts, where interest rates remain unchanged at up to 2%.”

Barclays will slash 11 of its rates on December 1. Katie Horne, 54, from Bath, was horrified to learn the interest on her Everyday Saver account will drop from 0.25% to 0.05%. She has been meaning to move her savings for the past year, due to the rubbish rate. Now Horne intends to move it by the end of this month. “I’ve had classic savings inertia,” she said. The private client adviser has banked with Barclays since she was at university, and has a rainy-day savings fund she dips into when she visits friends and her fiancé Deon’s family in South Africa. “I may as well set light to the money, to be honest. I must find a better savings account.”

What next for rates?
Experts believe the Bank will cut rates again this year. A poll by Reuters of 58 banks and economists last month revealed the consensus was for Bank rate to finish 2016 at 0.1%, and stay at that level next year.

Tom Becket, chief investment officer at the wealth manager Psigma, said: “There is definitely a chance rates will get cut again this year. Bank of England governor Mark Carney will be pleased with how things have played out since the last cut — for example, confidence has increased and the stock market has rallied, and he might plump for more of the same.”

The FTSE 100 finished last week at 7,044, a 320-point increase since the start of August.

Becket added: “Rates will be very low for a very long time. The futures market suggests UK interest rates won’t get back to 0.5% for about eight years — in effect, the next rate hike will be in the 2020s.”

Where can I find a decent return?
It’s a topsy-turvy world — you need to look at current accounts to find the best rates. TSB and Nationwide pay 5% on their current accounts, on deposits up to £2,000 and £2,500 respectively. Halifax pays £5 a month on its Reward current account.

Coventry offers the best easy access Isa, at 1.1%. Unfortunately, even if you lock your money up for several years, you will not get much more: the top two-year fixed-rate Isa pays 1.2% (Shawbrook bank), while a three-year Isa pays 1.5% (Paragon bank), according to Savings Champion.

NS&I Income Bonds look very attractive compared with the paltry returns on offer from competitors: the easy access account pays a monthly 1% on deposits from £500 to £1m and is fully backed by the government. However, as they are now near the top of the Best Buys (see our tables on page 7), Bowes warns the rate may be cut soon.

Savers will need to take more risk to generate a larger return. Peer-to-peer lending, where savers lend directly to borrowers, is one option. Hagger said: “Maybe it’s time for people to look at the established peer-to-peer players such as RateSetter or Zopa — neither comes with the FSCS safety net [the Financial Services Compensation Scheme guarantees up to £75,000 if a bank or building society goes bust], but their track records are good and rates attractive.”

Returns are not guaranteed, because borrowers can default on their loans. Zopa advertises returns of between 3.3% and 6.5% a year. RateSetter said investors should get 3.4% for lending their cash for a year, or 5.6% for lending it for five years.

For people who have given up on cash Isas and would like to put more money into stocks and shares Isas instead, Becket offers some ideas. He tips Unilever (with a dividend yield of 2.9%), Reckitt Benckiser (2%) and Microsoft (2.7%). For funds, he likes Artemis Global Income, which yields about 3.5%, and TwentyFour Dynamic Bond, which yields about 5%.

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