Misery continues for savers with rising inflation and record low rates

THE last cut was the deepest when the Bank of England announced on 5 March, 2009 that it was halving interest rates to a record low of 0.5 per cent. Yet few people imagined then that one year later, any relief for savers would remain a distant prospect.

The cut consigned savers to months of misery and condemned millions of pensioners dependent on savings interest for their income to more financial hardship. For much of the past year savers have had reason to be grateful for low inflation, but the recent increase to 3.5 per cent means the vast majority of savers are now losing money. The Save our Savers campaign group estimates that around nine million British savers have suffered a considerable cut in their income since base rates began plummeting.

The rate from the average instant access saving account actually crashed to its lowest level before the base rate fell to 0.5 per cent, dropping to 0.16 per cent the week before the last reduction. Since last May the average instant access account has paid out just 0.17 per cent and while the onus is on savers to vote with their feet (the best instant access account, from West Bromwich Building Society, pays 2.65 per cent) matters will only get worse as interest rates are unlikely to rise before the end of this year.

Remarkably, some products continue to be considered savings accounts even with rates of just 0.05 per cent. Among the culprits, according to Moneynet, are instant access accounts from Manchester and Darlington building societies and Intelligent Finance and Cheltenham & Gloucester, both owned by Lloyds Banking Group. Scottish Building Society's Scotline product is little better at 0.10 per cent.

A 5,000 balance at 0.05 per cent equates to interest of 2.50 a year, and that's before tax. There seems little point in providers offering accounts with rates that low, given the administration and printing costs associated with promoting the products.

For some time last year, fixed rate bonds did offer some hope for savers happy to put their money out of reach for two years or more. That has changed, with the average rate down from a peak of 3.05 per cent last June to 2.41 per cent, a rate that is still relatively generous.

Similarly, the average individual savings account (Isa) still pays below the base rate. But this is where savers must look if they want a chance of beating inflation while retaining access to their money – a vital caveat at a time of rising unemployment. Competition for Isa business is heating up as the end of the tax year approaches. Santander's 3.5 per cent deal still leads the pack, a week after it was launched, but more deals of that ilk are apparently imminent.

Last October's increase in the annual tax-efficient allowance for over-50s to 10,500 (5,100 for cash Isas) is another argument in favour of taking advantage of Isas this month. Yet the early signs are that the opportunity is going begging, with too little being done to promote the tax benefits of Isas.

Just 6 per cent of Scots over 50 know what their annual stocks and shares Isa allowance is and only one in five are aware that their cash allowance is now 5,100, according to a survey by Selftrade. In a climate in which prudence trumps spending and millions are losing money in mediocre savings accounts, an opportunity is being missed and a massive amount of needless tax is being paid.

The Save our Savers campaign has pledged to lobby political parties to do more for savers, but it is unclear what exactly it wants. It is also the case that many providers are simply not in the financial position to offer better rates.

So a year after the Bank hammered another nail in the savings coffin, it's still down to savers to make the best of what is on offer – and that is not happening.