Savers face interest rates woe

Empty pocketMany pensioners and savers have been made permanently poorer due to all-time low interest rates and quantitative easing (QE), campaigners said.

While recent figures have shown that savers are putting more cash aside, this is because they are "desperately worried" rather than due to a choice of accounts giving them real returns for their money, campaign group Save Our Savers argued.
Typical savings rates have halved in recent years, while pensioners have also faced falling annuity rates since interest rates were cut to "emergency" levels more than three years ago.

Figures released this week by ING Direct showed that the average savings balance has risen to £1,858, the highest figure in nearly two years, despite the squeeze on incomes caused by high inflation.

Save Our Savers spokesman Simon Rose said: "If inflation eats at your savings, that is gone forever. A lot of savers are pensioners who are living off a fixed income and trying to eke out an existence. Savings are going up, but for the wrong reasons. People are saving because they are desperately worried. If you feel poor, you are not going to go out and spend."

Mr Rose said that savers' desire to keep their money locked up was also having a wider negative impact on the economy as people were more reluctant to make big purchases.

He said of the Bank of England's policies: "It is as if they have put sand into the engine of the economy and they are surprised it is not going any more."

The choice of accounts available to savers has dwindled as people have struggled to get a real return on their money amid the low interest rate environment. There are currently 1,023 savings accounts available, compared with 1,192 this time last year, according to comparison website Moneyfacts.

Current account customers have increasingly found they are earning no interest at all, with several banks having slashed interest rates to zero. Around £15-£20 billion was sitting in accounts which were paying no interest in the years before the financial crisis, a figure which has since risen to more than £100 billion.

Low interest rates and QE have particularly hit annuity rates, which analysts say has resulted in more than a million pensioners buying an annuity which will pay less for the rest of their lives. Analysts have found that a 65-year-old man with £100,000 could have bought a level income of £7,855 in July 2008, but someone in the same situation this year would only receive an income of £5,923, a drop of just under 25%.

More stories

Read Full Story