What about the savers?
- 15 Feb
A lot of noise (propaganda?) is being created around the UK’s unexpected economic boom following the Brexit vote. We are being force-fed a constant diet of how the visionary ‘leavers’ were right all along and the doubting ‘remainers’ were so horribly pessimistic in their outlook that they are now having to eat humble pie. Exporters are laughing because of the 16% drop in the value of sterling and money is relatively cheap for domestic borrowers who have mortgages and want to buy new cars – the sort of things that help put politicians in a better light with voters.
Good news, then, except if you are one of the UK’s millions of honest savers who saw another 0.25% sliced off your returns from National Savings and Investment (NS&I) products last week. Even the number of prizes given out on Premium Bonds is going to be reduced to have the same effect. Naturally the banks and building societies immediately fell into line with this lead and adjusted the rates paid out on their own products. All the cheery economic news won’t mean much to people who rely on the interest on their savings to supplement their income.
A look around the savings market place tells its own story. According to Money Mail, as from May 1 this year a cash ISA will return 0.75%, which it describes as “not bad in the current climate” – on the basis that the average rate for new savers opening an account elsewhere is 0.4%. The same rate of 0.75% will also apply to Income Bonds, the second most popular NS&I product, in which people have entrusted £13.5bn. On easy access accounts, the paper says that the average rate for new savers opening an account is at a record low of 0.15%.
That’s crushing news in a week when we were told that inflation rose from 1.6% in December to 1.8% in January, which is scarily close to the Bank of England’s target inflation rate of 2% for this year. And it’s already starting to bear down on the 2.7% expected for 2018.
The consensus is that the low interest rate era is expected to last for the foreseeable future so any meagre returns that are on offer look set to be gobbled up by inflation to leave people with savings that are rapidly diminishing in value. How enticing this makes the comparative returns look on P2P loans, where you can easily get 6%, remains to be seen. As always, the fly in the ointment is our old friend ‘risk’ and people’s individual attitude towards it. But there must come a cross-over point where ordinary people will be forced to step over the line between guaranteed and secured returns to products which provide less security, but offer a decent yield.