Savings Account Interest Rates Fall While Borrowers Benefit

Savings account interest rates have been falling since November last year according to Moneyfacts.co.uk, and are now back to the levels seen last summer.

However, while savers appear to be losing out, borrowers are benefitting as mortgage lenders have cut their rates.

For instance, in November 2009, the typical easy access account offered savers a return of 0.81 per cent, but this now stands at 0.75 per cent.

Bonds appear to be the hardest hit – the average five year bond two months ago would have paid 4.77 per cent in interest, but following a reduction of 0.23 per cent, the average return is now 4.54 per cent.

In contrast, borrowers have in the past two months benefitted from lower interest rates, as the average two year fixed rate mortgage has been reduced by 0.24 per cent down to 4.87 per cent.

Meanwhile, the average rate for a five year fixed mortgage is now 6.04 per cent, which represents a 0.16 per cent decrease since November.

Commenting, Michelle Slade, spokesperson at Moneyfacts.co.uk said: “Providers must strike the right balance between savers and borrowers in order to maintain their balance sheets. No provider will offer market leading deals to both at the same time.

“Competition is slowly returning to the mortgage market with LTVs and product numbers increasing and rates falling.”

Ms Slade suggested the focus from banks appears to have switched back to lending as “demand for savers’ money reduces”.

But she added that the forthcoming ISA season “will see providers battling it out to attract savers’ tax free allowances.”

© Fair Investment Company Ltd