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Savings to hit rock bottom if base rate is cut this week

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Tuesday 6 January 2009

Writes Seamour Rathore
seamour.rathore@consumerchoices.co.uk

Returns on savings are plummeting and could reach a 20-year low, if the base rate is cut again this week.

“Basic rate tax payers need to earn a rate of 5.13% to break even.”

Britain’s savers are facing the lowest returns for 20 years, with further falls as the base rate is widely predicted to be cut again on Thursday.

The plight of British savers has been seized by opposition leader David Cameron who yesterday said a Conservative government would axe tax on savings interest for all basic rate taxpayers. Cameron also said he would raise the tax threshold for pensioners by £2,000 to £11,490.

As recently as last summer, savers could get a fixed rate of 6-7% on savings. But returns have been plummeting, since the series of base rate cuts which started in October.

Now the average savings rate on a no-notice account is 1.48%, according to personal finance information group Moneyfacts (www.moneyfactsgroup.co.uk). Moreover, 38% of savings accounts are offering sub-1% rates of interest.

Michelle Slade, analyst at Moneyfacts said: “We are likely to see the average rate [of savings interest] drop to the lowest level ever seen.

“The impact of high inflation and tax has meant that basic rate tax payers need to earn a rate of 5.13% to break even, which is virtually impossible to find in the current market.”

Chris Eagle, commercial manager at CreditChoices.co.uk said: "It really is time to look at the rate you are getting on your savings and see if you would benefit from switching.

"Always make sure you use your full year’s ISA allowance in the first place – the tax breaks will go some way to improving your returns.

"Our best buy for instant access savings is ICICI Bank's HiSAVE which pays 4.5% AER. Next up is Alliance & Leicester's eSaver account which pays 4%.

“If you are prepared to lock your money away for a year, ICICI Bank's Fixed Rate Savings account pays 5.10% for 12 months. ICICI is covered by the Financial Services Compensation Scheme (FSCS) for sums up to £50,000."

Click here to Compare Savings Accounts.

Click here to read our Guide to instant access savings page.

Click here to read our Guide to notice savings accounts page.

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