Savings rates have plummeted to the lowest level in history at a time when banks and building societies are typically trying to attract savers’ cash.
Instead of raising rates during Isa season, providers have been slashing them. Today the average easy access cash Isa pays 1.05%, compared to 1.51% five years ago, according to financial analyst Moneyfacts. The average rate on an easy access savings account, meanwhile, has slumped to 0.61% compared to 0.85% five years ago. This is barely above the Bank of England base rate, which has stood at 0.5% since 2009.
Rachel Springnall from Moneyfacts says: “It’s clear that the funding for lending scheme decimated the savings market, and the effects still linger on, as many providers continue to cut rates. No one area of the market has been left unscathed: it is all types of variable or fixed-rate savers, as well as much-loved Isas, so it’s a very dire situation for savers.”
Experts partly blame the banks’ lack of appetite for savers’ cash on the introduction of the personal savings allowance next month. Andrew Hagger from MoneyComms says: “I don’t think we will see an Isa rate war this year, particularly with the introduction of this new allowance.”
From 6 April, people will have a tax-free allowance of £1,000 on the interest earned on their cash, falling to £500 for higher rate taxpayers. So you can earn this much interest before handing over a penny to the taxman, with estimates that the change will see 95% of people paying no tax at all on their savings.
“At an interest rate of 1.5%, a basic rate taxpayer would need more than £66,000 in the account before they exceed that limit,” Hagger says.
