Slashed savings rates mean savers miss out on £5 billion in interest
During this period the Bank of England base rate hasn't moved an inch. So why are savings rates plummeting, and what can you do?%VIRTUAL-SkimlinksPromo%
The Daily Mail reported that the average rate on a cash ISA has fallen from 2.75% to 1.16% in that time, and the average instant access savings account now pays just 0.5%.
If banks and building societies were paying the same rates that were available two years ago, savers would be making £18.75 billion - instead they're making £5 billion less - at £13.5 billion.
Why?According to Hargreaves Lansdown, a major part of the problem is the Bank of England's quantitative easing programme, and more recently the Funding for Lending scheme launched by the government in 2012.
The former ploughed £375 billion into the system in order to keep banks lending, while the latter aimed to make mortgage lending more easily available, by making it cheaper for banks and building societies to borrow money from the Bank of England. Both measures mean the banks no longer have to work so hard to get savings in through the door to enable them to lend. So they have dropped their savings rates.
Even though Funding for Lending ended in January this year for mortgage lending, it is still available until 2015 to support lending to businesses, so banks and building societies still have access to cheap funding.
What can you do?Unfortunately Hargreaves Lansdown doesn't expect immediate increases in savings rates when the Bank of England raises the base rate, because banks are still not keen to lend money, and so have no need to attract savings. It means you need to take action yourself.
The first step should be to examine how much you are earning at the moment. The chances are that the longer you have held your savings with the same bank, the poorer the interest rate will be, as the Financial Conduct Authority found that long-term customers were typically earning less than half the interest being paid to newer savers.
It's worth considering the kind of account you need, whether you need instant access and regular withdrawals, or whether you intend to leave the money untouched and could benefit from a cash ISA. Then use any one of the comparison sites to see the best interest rates on offer, and whether the terms and conditions suit you.
While there's nothing we can do to influence the interest paid by banks and building societies in general, we can certainly control the amount we receive personally.