Savings Accounts Hit By Base Rate Remaining At Record Low

The Bank of England’s decision to maintain the base rate at 0.50 per cent is leaving savers hard pressed between ‘a rock and a hard place’, it has been claimed.

According to Defaqto, with inflation now standing at 3.50 per cent, it is becoming increasingly difficult for savers to find a savings product that can offer a real return on their money.

Research by Defaqto has found that the highest earning instant access savings account is paying three per cent AER on a £1,000 balance, while the average is paying far less at 0.86 per cent AER.

Commenting, David Black, banking specialist at Defaqto said: “Once again those hardest hit will be those who rely on savings interest to supplement their day-to-day living which will be the case for many pensioners.

“The paucity of most savings rates on offer means that many with spare cash will be looking to reduce their more expensive debt, such as outstanding debt on credit cards, unsecured loans or overdrafts, in preference to earning low savings rates.”

It appears the highest rates on the market are targeting savers willing to lock away their money for a number of years. For instance, the highest earning five year fixed rate bond with a balance of £5,000 is paying 5.10 per cent AER, while the average is 4.43 per cent AER.

Meanwhile, a fixed rate cash ISA could potentially provide a real savings return, with the highest paying product on the market offering a rate of five per cent.

For those savers who want the best variable savings rates, Mr Black believes they will need to transfer their money around on a regular basis to take advantage of introductory rates.

“Some existing accounts pay rates as low as 0.01% so savers really need to avoid the obvious pitfalls of inertia,” he added.

© Fair Investment Company Ltd