Three years of rock-bottom interest rates
The Bank of England (BoE) is keeping interest rates at 0.5% for the 36th successive month.
During that time savers have seen the value of their money shrink as interest rates have failed to keep up with inflation.
The average savings rate in September 2008 - before the BoE started slashing rates - was 2.46% for instant access accounts and 5.92% for fixed-rate bonds. Now the same accounts pay an average of 0.2% and 2.48% respectively.
In contrast, the freeze on the base rate has been great news for homeowners. In September 2008, the average two-year fixed-rate mortgage with a loan-to-value of 75% charged 5.96% interest, tracker mortgages charged 6.12% and the average standard variable rate was 6.95%. These are now 3.27%, 3.57% and 4.36% respectively.
With experts predicting that the base rate won’t rise for another 18 months things aren’t going to improve for savers any time soon.
"A fourth year of interest rates at 0.5% looks highly probably and a fifth is far from impossible given the difficult domestic and international conditions that the economy faces," says Howard Archer, chief UK economist at IHS Global Insight.
"Our current view is that interest rates will not rise before late 2013 and the BoE could very well delay acting until 2014 given likely extended muted economic activity and the need to offset tight fiscal policy."
Meanwhile, the tide is turning for homeowners with banks putting up rates regardless of the base rate freeze.
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.