What’s the point in saving?
Paul Lewis reports on the sorry state of falling interest rates for savers
Many people like the safety of cash – it protects their savings from events like the recent fall in share values by 11% over five days – the biggest one week fall since the financial crash of 2008.
Despite this, cash is hardly producing blistering returns.
Banks have been steadily cutting rates on our savings (as I write, the Bank of England has just cut interest rates again, to 0.25%) and in February, National Savings and Investments slashed the interest paid on its most popular income bond to cut the income of nearly 200,000 savers by 39%.
The average amount saved in NS&I Income Bonds is just over £100,000. At the moment that is earning 1.15%, which is £1,150 a year. From 1 May, that will fall to 0.7% or £700 a year – a loss of £450 for its 181,000 customers.
Cuts in other products have been slightly less – though generally, all are over 25%.
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In its three main savings products currently on sale, NS&I will take more than £120 million a year in interest from nearly two million customers.
Premium Bonds were also cut. The interest paid, which is used to form the monthly prize fund, is falling from 1.4% to 1.3% and the chances of a bond winning each month will fall from 1:24,500 to 1:26,000.
The effect is that someone with the maximum £50,000 in bonds who now expects on average just over 24 prizes of £25 a year will in future get 23.
The number of prizes of £50 and £100 have been cut in half, so the average wait for one, even with 50,000 bonds, will rise from 71 years to 77.
The bigger prizes will still never be seen by most savers. NS&I explained that it was following the banks as they cut their rates. It also stressed that savings up to any amount were safe, whereas only the first £85,000 was guaranteed if the worst happened and a bank went bust.
Currently, the best instant access rate is 1.3%, and 1.6% in one-year bonds. Use the impartial website savingschampion.co.uk to find the best deals – and move your savings at least once a year to maximise your returns.
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