Savers suffer as borrowers benefit

14 January 2010

Banks and building societies have been accused of offering cheaper mortgage rates to borrowers at the expense of savers.

Interest rates on mortgages have reduced over the past couple of months, according to data provider Moneyfacts. However, at the same time, savings rates have also been cut as lenders try to maintain their balance sheets.

For example, the average five-year fixed-rate savings bond currently pays 4.54% - down 0.23% since November.

In contrast, the average five-year tracker mortgage has reduced in cost by 0.16% during the same period.

“Savers’ money was in high demand during 2009, leading many banks and building societies to offer rates as much as 10 times the base rate,” says Michelle Slade, spokeswoman for Moneyfacts. “Providers must strike the right balance between savers and borrowers in order to maintain their balance sheets - no provider will offer market leading deals to both at the same time.”

Despite conditions in the mortgage market remaining tough, things have been slowly improving. The number of products available in on the up, rates are being cut and the average deposit required has fallen.

Slade adds: “The focus appears to have switched back to lending and as the demand for savers’ money reduces, so do the rates offered.”

Falling rates are the only issue facing savers. Inflation is expected to rise during 2010 – meaning the value of their money is being eroded.

“Many savers have just experienced their worst ever year’s returns and 2010 is not shaping up to be much better,” admits Slade. “The only benefit is likely to come from the forthcoming ISA season that will see providers battling it out to attract savers’ tax free allowances.”

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