Does the government want to keep saving rates low?
In fact fixed-term bond rates have fallen to an all time low over all terms, from one year to five year, and if you want to earn a smidgen over inflation then you have to put your money away for five years.
%VIRTUAL-SkimlinksPromo%Why are rates so low? Well, we know why interest rates are – the Bank of England sets those and they remain low in the hope of kick-starting the economy but there could be another reason why savings rates are so low.
The government opened its Funding for Lending scheme in August, which essentially gives the banks access to £80 billion. Lenders can take advantage of this money but in order to get preferential rates from the government they must lend it out, the more they lend then the better the rate for them.
This has seen mortgage rates fall dramatically much to the delight of those remortgaging and first-time buyers, but it has had a negative impact on those saving.
The banks will deny it but because they don't need to attract consumer money that they can lend out because they have a big pot from the government sitting there, they don't have to offer good savings rate.
Surely the government has thought about the impact on savers? If not, then it's worrying but if it has, then could this be a theory (bear with me as it's a bit conspiracy theorist); the government wants savers to make virtually zero on their money so they decide that they're better off spending it on a new car than watching inflation whittle it down?
Forcing savers to spend their money through persistently low rates would be a very clever, albeit underhand, way to boost the economy.
Unfortunately it goes against everything the government is prone to telling us to do: save more. We are supposed to be saving for our old age, for emergencies, for Christmas, but where's the incentive.
First-time buyers are being offered great mortgage rates but how are they going to save up a deposit quick enough if we don't have banks that will offer decent savings rate? It could take years to save a deposit and in the meantime the savings are being ravaged by inflation.
It's great the government is helping the mortgage market, now give savers some respite.