Saving banks have slashed rates by as much as 4% on over 150 products since interest rates started to fall in October.
Figures from uSwitch show that the 3% decrease in the Bank of England base rate over the past three months has prompted 76 savings providers to chop rates by up to 400 basis points.
Following the December 1% base rate reduction, 47 providers decreased rates on 100 savings products by as much as 2.22%. The average rate cut was 1.1%.
Alliance & Leicester cut the rate on its Save and Protect regular deposit account by 4% for new applications, while Cahoot has introduced two rate cuts totalling 2.99% on its savings deal.
The rate on Liverpool Victoria’s Easy Access cash ISA will reduce by 3% within the next month, while Barclays’ cash ISA has reduced by 1.75%.
Just one provider, Capital One Saving increased the rate on its fixed rate bond, but only by up to 0.3%.
Louise Bond, personal finance manager at uSwitch.com, says base rate cuts, designed to help cash-strapped households, have provided a smokescreen for savings providers to slash rates by as much as they please.
“December has been a particularly bad time for savers, with what feels like the fallout of three base rate decreases,” she adds. “Unfortunately, these low rates are not encouraging consumers to save at a time when every penny counts.”
According to Moneynet.co.uk, 27% of variable rate savings accounts currently pay 1% or less while 15% of variable rate savings accounts currently pay 0.3% or less.
The situation is unlikely to improve anytime soon, with economists forecasting another interest rate cut in January that could potentially bring the base rate to just 1%. And with the Federal Reserve in the US cutting interest rates to between zero and 0.25%, experts refuse to rule out the Bank of England voting for 0% rates down the line.
Falling interest rates and above-target inflation have created a double whammy for people with their savings in cash. Research from Skipton Financial Services shows that a saver with £100,000 in a cash account paying 5% a month would only have £69,242 remaining five years later, assuming 1% interest rates and 2.8% inflation.
Mark Fleet, managing director of Skipton Financial Services, says: “With the Bank of England set to further cut rates next month, and rates tipped to fall below 1% next year, UK consumers are set to face a sustained period where they will simply not receive the income they have become used to from their savings accounts. Whilst inflation is falling, it is currently riding at 4.1%, meaning many customers’ life savings will not be keeping pace with inflation, never-mind growing ahead of it.”
Despite the fall-out in the savings market, research from moneysupermarket.com suggests that people are more inclined to save rather than spend any extra cash they have.
Kevin Mountford, head of banking at moneysupermarket.com, said: "Despite the government's attempts to get people spending big on the high street again, thankfully, people are seeing saving as very important now.
"If the credit crunch has taught everyone and every bank one important lesson, it is that savings are important.”