More than 100 savings accounts have been withdrawn from the market since the Bank of England cut interest rates in August, and the choice available to savers has hit a new low, figures show.
Banks and building societies have responded to the fall in interest rates by pulling accounts rather than reducing rates, financial information provider Moneyfacts said.
The number of products available to savers has fallen by 127 since August, and is at its lowest level since at least 2007, its data showed. Savers can now choose from 1,445 accounts – well below the 2,093 available when the market peaked in April 2012.
Savers were already suffering ahead of the base rate cut, with 147 products withdrawn in the first half of the year against a backdrop of falling rates.
Returns for savers have fallen for several years following previous cuts and the government’s funding for lending scheme, which removed the need for banks and building societies to attract deposits from consumers.
In July, the Bank said the average rate on an instant access account had fallen to 0.34%, while the city regulator named and shamed several big banks with accounts paying close to no interest.
The Bank’s data shows that average rates have fallen further since then, with instant access accounts offering just 0.28%, including bonuses, at the end of September.
Charlotte Nelson, finance expert at Moneyfacts, said: “Two months on from the base rate cut, you would hope that the dust had settled by now. Unfortunately, providers are still withdrawing products at an alarming rate.”
Nelson said the continuing downward spiral in rates meant that some small building societies had found themselves creeping up the best-buy tables.
“Savers sensing a good deal immediately flock to these new best-buy rates. Since these smaller providers are unable to cope with the influx in demand, they have no choice but to withdraw the product from the market,” she said.
When the Bank cut the base rate to a record low of 0.25%, it introduced a funding scheme for banks to enable them to pass on the reduction to borrowers without damaging their margins.
Nelson said the introduction of this “term lending scheme” was likely to exacerbate problems for savers. “This is evidenced by the fact that when the funding for lending scheme was introduced, not only did rates drop but products were removed from the market altogether.”
Recent low interest rates have made high-paying current accounts attractive to those with money to hold on deposit, but banks have begun to cut returns following the base rate cut.
From 1 November, customers with a Santander 123 account will see their interest halved to 1.5%, and Lloyds and TSB recently announced similar cuts to their top-paying current accounts.
Meanwhile, the Financial Conduct Authority has published details of accounts with low rates to encourage people to switch, but Nelson said there was a danger that savers would not bother to move.
“At a time when the FCA is implementing policies designed to get savers switching, this reduction in product numbers is concerning,” she said. “Not only will savers have a reduction in choice, but with rates in a constant freefall it is starting to become a pick of a bad bunch.”
