/ 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.

Comments
Member

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

Member
IrvSwerve says:
3 January 2014

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

Member

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

Member

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

Member

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

Member

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

Member

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.

Member

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.

Member

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.