/ Money

A happy new year for savers?

Piggy bank on wall outside house

The Bank of England’s decision to withdraw its support scheme for mortgage lending could give savers a much-needed boost as there’s been little comfort for them over the past few years.

So do savers finally have a reason to be cheerful? The governor of the Bank of England, Mark Carney, announced that from February 2014, the Funding for Lending Scheme (FLS) will no longer be used for household lending.

With mortgage lending increasing and house prices rising in much of the country, its focus will shift solely on to small businesses. Launched in August 2012, FLS was designed to provide banks and building societies with cheaper finance to fund mortgage lending.

Property market on the up?

While there are signs the property market is picking up, savers have become the victims of a nasty side effect – access to cheap borrowing has reduced banks’ need to compete for customer deposits, and interest rates have plummeted. In July 2012, the best rate on an instant-access account stood at 3.2% (for savings of £5,000), compared with just 1.55% today.

The withdrawal of FLS means a rate recovery could be on the cards – if demand for mortgages remains high, banks will need customer deposits to finance this borrowing. But recovery won’t happen overnight, and while the base rate remains at 0.5%, savers will remain hard pushed to find inflation-beating returns.

With the possibility of rising rates around the corner, it’s worth thinking carefully before tying your money up in a fixed-rate bond to avoid being stuck with an uncompetitive account. And don’t expect the rate on your existing account to increase automatically – be sure to keep an eye on other options and switch to a better deal.


I really hope they will raise the interest rate before I starve to death

IrvSwerve says:
3 January 2014

Richard At that unearthly hour you should be in bed if only to keep warm and thereby eat less!

IrvSwerve, Richard could be making best use of Economy 7.

As you don’t know how I live you can’t meaningly comment – In fact I sleep with three large dogs so am always warm – I can no longer AFFORD to buy food – THAT IS WHY IT IS STARVE NOT FREEZE

No offence meant Richard – just a (perhaps too) flippant comment.

No offence taken – I just object that some posters – post without knowledge – yet deny it

Gosh, it must cost a small fortune to feed three large dogs. I have a friend who has three small dogs (Jack Russells) and he is struggling to pay for their food out of his benefits.

Well – I’ve “always” had three large dogs so don’t notice – I’m not on benefits except pension – but they are my favourite savings – I use them as bed heaters of 101 degrees and portable room heaters! In fact the heating saved in my large house is over £1120 a year – which pays for the food and I get delightful company – which is more than I can say about from one person (not you of course) on here who knows absolutely nothing about my income and lifestyle – yet still demands I sell my house which is I use usefully DAILY and “downsize” and cost me even more. Honestly dogs are wonderful especially when at 83 all my local friends are dead.and most of the people locally are now foreign strangers.

I don’t think we’re necessarily looking for “inflation-beating returns” . . . level-pegging would be nice!

To some extent the days of savings yields comfortably exceeding both price and wage inflation contributed to our recent economic problems. Such returns pushed up borrowing interest rates leading to higher multipliers of income and lower deposit ratios. In prudent hands this would have been manageable but the demutualised lending industry went bananas with excessive loan-to-value and loan-to-income ratios and we all know what happened next.

The progressive erosion of the value of capital due to price inflation has been as big a worry as the decline in income levels. At present there is no sensible saving or investment product – with the emphasis on sensible – that will keep pace with inflation let alone recover the slippage so the prime objective should be to restore sound and prudent economic management at every level within the economy and at least achieve stability. I think we are moving in the right direction but there are dangers in doing certain things too quickly and we should not be looking for a rapid return to historic returns even if they were desirable. How much longer public sentiment will support the present pain and slow recovery, and whether our politicians will make more misjudgments as an election approaches, are crucial questions.

The danger is that unscrupulous politicians will promise jam today while we should still be making the bread. Interest rates are like any other commodity – they respond to supply and demand. Whilst cheap money was available to fund home loans, for example, the banks and building societies had no need to compete for savers by offering higher interest rates. As the housing market grows I expect we will see this demand increase, and savings interest rates begin to rise. Let’s hope it doesn’t all get out of hand again.

Mark Carney has promised ‘more jam’ when unemployment reaches 7%. (currently 7.4%) Lets hope he does a better job than Mervyn King by averting another Boom & Bust situation.

The effect on savers of QE and FLS has been under reported and in ranks with the cost of living issue with low growth in pay. The spending power of savings has probably fallen over 10% in the last 5 years. Banks and BS dont help by constantly reducing to nearly zero interests rates forcing savers to move to another scheme (at a lower interest) with the hope that savers just forget and end up with a derisory return.

There isn’t much point in moving to a LOWER rate.

We have a Bank of England that has basically forgotten how to do anything except sit and watch what happens. That is not going to change this year. Stuff the lot of them. And the Building Societies.

I’ve had a reduction of 90% not 10% – I’m called an old saving OAP with a fixed income. Then they will remove my entire income by the once “free from cradle to grave health charges” after paying my taxes and NI for my entire life – now its £250,000 plus my home. Never vote Tory. It is only for the rich. And someone suggested “downsizing” with no knowledge what so ever..Such comments annoy me.

It was thirteen years of Labour screwups that dropped us in this hole. You cannot blame the Tory party for Tony Blair or Gordon Brown.

Sadly you obviously do not know anything about the mess the Tories did – I blame the maladministrations of the Tory Sell off – Check it out – Sadly you have been reading too much Tory propaganda and too probably to young to remember – or too rich to be affected

If you want to delve into history you could start with Attlee giving away the jet engine to the Russians and Americans. You can’t be going back too far.

I’m not going back too far – I’m simply referring to the mess the TORIES did before Labour was in power – From selling off social housing stock without re-building and privatising – to selling off industries.

Jeff Evans says:
4 January 2014

I reckon that the people who run all these institutions like the Bank of England are clueless as well as government ministers. Their schemes are short-lived and don’t achieve what they said it would.

Same with Financial Advisers. Clueless the lot of them. Tell you things to get commission and then blame the changes on banks, government policy, insurance companies, world issues etc.

They never admit to having given wrong advice – or just guessing.

I remember an article that compared equity returns of Fund Managers’ antics with sticking a pin in a newspaper to choose what to invest in. The pin won! Clueless!!!

Dennis says:
4 January 2014

Something needs to be done to help savers, with interest rates so low why should we save, might as well spend it on something that will give a little pleasure too ward off the hard times ahead.

That’s what has got us into trouble in the past. Who is going to support you financially when you’ve spent your money?

Dennis, you could get around 3.2% return on stocks and shares (before charges) plus capital growth (currently). Better than any safe cash deposit and, if you pay any tax, they could go into an ISA . You do need a sensible provider though to both keep the costs down and pick the investments wisely – unless you are confident of doing this yourself.

My point exactly – But one bank has closed their existing stocks and shares ISA – so they are not interested in saving the investor’s money – They instead want to charge banking fees to make greater profits for themselves – I am now trying to get the money out asap – but have to pay banking charges Interestingly my cash ISA is paying 150% MORE (at another Bank of course). So I will not use the “stocks and shares ISA” bank again. I thought at the time ISA’s were safe investments – Apparently greedy banks can now do what they please without notice – Seems fraud to me

Got a good investment for you.
Try PV panels with a diverter to the hot water tank. My electricity bill has halved and my oil bill has reduced as well. My home is worth more. Including the feed in tariff the return on cap[tal could be around 12% on the year.

Clive says:
5 January 2014

The bankers and politicians do not have a clue about running the economy, and never have. Their only aim has been to make money for the gamblers amongst them and to protect individuals from any blame for their actions. We must prosecute some bankers for their total disregard of simple economic principles to indicate our concern over their mishandling of our funds entrusted in them and send them to prison to set an example.

Future bankers and politicians should have to sign, as part of their employment, that they must carry out their duties in an orderly and responsible manner or otherwise face prosecution in a court of law . Without any exceptions being made.

I notice that todays announcement of inflation falling to 2% has caused comments in the press that this will reduce the likelyhood of an interest rate rise. There were no rises when inflation was high and there look like no rises now the inflation rate is low. I stand by my earlier comment that the Bank of England has basically forgotten how to do anything except sit and watch.

I think that what you and I might get in interest depends more on the need of banks and building societies for our money than on Bank of England’s policy. I wouldn’t hold your breath but suspect there will be a modest increase in rates in the next few months as lending for house purchase increases.

Jeff Evans says:
14 January 2014

Just got a letter from Nationwide.
Loyal Savers rate will drop from 2.1% to 1.7% as of 01 Feb. And this is after a drop from 2.6% last May. And next week my HSBC ISA rate drops from 2.7% to 1.7%.
This can only mean that the banks do NOT need money from savers. Which implies that nobody is borrowing.
Being retired I rely on savings interest and savings capital to supplement my meagre income. QE is the culprit and is really affecting me badly.
I may as well spend my money sooner rather than later as inflation is eating away at the capital.

And please – don’t suggest stocks and shares. I had an equity plan that matured in 2008. Only just made a slight profit. The next year I would have made a loss after 25 years of investing in it. Stocks are unreliable depending when you need the money (or in my previous case above when a plan matured and had to pay out).
My savings are being eroded so quickly that equities are too volatile for me.