Interest still dwindling for hard-hit cash savers

THE BANK of England's decision to cut interest rates to 4% on Thursday may help lift the struggling economy but it is a blow for savers, who will now get less on their deposits. It was a close call. Four of the nine members of the Monetary Policy Committee (MPC) wanted to hold rates at 4.25%, amid concerns that inflation remains stubbornly high, rising to 3.6% in June.

- By Harvey Jones

But with unemployment rising and growth shrinking, the MPC pressed ahead with its third rate cut this year.

This latest move has big implications for savers who rely on cash interest to boost their income, those eyeing up investments for better returns and mortgage borrowers still feeling the pinch.

Samuel Fuller, director at Financial Markets Online, said the Bank’s “wafer-thin” decision had “done two things for savers, neither of them good”. First, he warned it would drive down the interest paid on savings: “With the high street banks paying barely more than 1% on easy access, keeping your savings in cash could soon deliver negligible returns.”

Second, with inflation still running hot and expected to rise again, falling interest rates mean cash savers are losing money in real terms. “The combination of rising prices and falling interest rates will slash the value of people’s savings,” he said.

Rates on the best-paying accounts are already starting to slip. Those who want to protect their returns may need to act quickly and lock into a fixed-rate deal while they still can.

SHOP

Laura Suter, director of personal finance at AJ Bell, says savers can still get 5.1% on easy-access accounts, but only if they shop around: “Savers can’t just leave their cash in an account they switched to a year ago.”