Savers set to suffer

7 November 2008

While a rate cut in November was pretty much nailed on, the decision by the Bank of England to slash interest rates by a full 1.5% stunned the City into silence. With interest rates now at a 53-year low, the Old Lady of Threadneedle Street wants banks to start lending again, and the banks are refusing. Whoever comes up trumps though, you can be sure it won't be us savers.

This time last year a savings war was going on. Northern Rock had collapsed, banks were crying out for our money and savings rates pushed a seven-year high of 7.5%. Anyone lucky enough to bag a two or three-year fixed-rate bond will be laughing.

However, for the majority of us who can’t afford to lock away their savings, ‘just in case’, we’re the ones punished. I try and squirrel away a little each month, making the most of my ISA allowance. Following the emergency cut last month I actually received £5 less than I did in September, and this month I'm going to lose even more. I know it's not much, but it all adds up.

So how convenient is it that banks are more than happy to slash their rates when it comes to their deposits, and up them just as fast on their mortgages and loans? It just leaves a bitter taste when lenders won’t pass on a cut to mortgages linked to interest rates.

A rate cut this week was pretty much odds on. And despite fervent calls for banks and building societies to pass it on, mortgage lenders actually started withdrawing their tracker deals for new borrowers – HSBC said it would not be reducing rates, and Abbey even increased its rates by 0.50%.

I suppose anyone lucky enough to be on a tracker mortgage should see a nice reduction in their monthly repayments, but if they’ve got savings, they are being punished too.

Call me cynical, but the banks should hang their heads in shame. All that us savers can do is to make sure our money is working the hardest it can – and with inflation at 5.2%, our nest eggs are being eroded by the day.

Then again, there’s always Halifax Liquid Gold.

Liam Tarry is the Staff Writer at Moneywise