Rate cut: Savers now on zero interest

By DAILY MAIL REPORTER
Updated: 03:28 EST, 6 February 2009

The relentless assault on savers continued yesterday with another interest rate cut. For the first time ever, many so-called savings accounts will pay no interest at all.

Doing the sums: The Bank of England decision will add up to less interest for savers

Financial experts said savers have become the 'sacrificial lambs' of the Bank of England's attempts to rescue the economy.

The Bank yesterday cut the base rate by a half-point to 1%, the lowest level since it was founded in 1694 and the fifth cut in five months.

The frenzied rate-cutting is having a devastating impact on savers, who outnumber borrowers seven to one.

The biggest losers are older people, who rely on income from investments to boost their pensions. More than 40% of building society savings accounts belong to over 55s.

Charities say pensioners are being forced to make painful cutbacks such as switching off heating and buying cheap food.

Former teacher Ruth Pacey, 84, spoke for them last night when she said: 'I feel my generation has been abandoned. I really worry how some of my friends are going to survive.'

Yet the majority of borrowers are not benefiting from the cuts. Most homeowners have a fixed-rate mortgage and may still be paying as much as 7%. The financial information firm Moneyfacts says there are now 133 savings accounts paying 0.1% or less.

A customer with £5,000 would get interest of just £5 a year - £4 after tax.

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Alliance & Leicester, Cater Allen Private Bank and Dudley Building Society are already penalising savers with accounts paying nothing. As a result of yesterday's cut, more banks and building societies will become 'savings sinners' who hold on to people's money but pay not a penny in return.

Many savers are suffering a double whammy as dividends from stock market investments are disappearing too.

Sean Gardner, from the comparison website MoneyExpert.com, said: 'Savers are the sacrificial lambs in the Bank's attempts to revive the economy. Anyone on a flexible savings rate might as well put the cash in the attic for all the difference it'll make.'

Moneyfacts figures show the average rate on an instant access savings account has plummeted from 4.04% last February to 1.08%.

Shadow Chancellor George Osborne called savers and pensioners 'the innocent victims of Gordon Brown's recession'. The Tories are urging measures such as increasing the tax-free allowance for pensioners.

As it made its latest cut, the Bank warned: 'The global economy is in the throes of a severe and synchronised downturn.'

It listed a catalogue of woes such as firms shedding labour and cutting back on investment and credit conditions still deteriorating.

Roger Bootle, economic adviser to accountants Deloitte, said he expects base rate to hit zero 'within a month or two'. At that point, the Bank is likely to be forced to start printing money, known as 'quantitative easing'.

There have been growing calls for the Bank to resist cutting its rate - it was at five per cent only in October - to protect the millions of savers.

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Adrian Coles, director-general of the Building Societies Association, said last night: 'Savers will have seen their interest payments drop by 83% since July 2007.

'People dependent on interest income have not seen prices fall by a similar amount. Their lifestyles have taken a significant blow.'

In December last year the Daily Mail's Moneymail section launched a campaign to protect savings. We called on banks and building societies to stand up for savers by offering them a fair deal.

While savers see their income disappear, yesterday's cut will not save a penny for the vast majority of homeowners. Fixed rates will stay the same, and many lenders have failed to pass on recent cuts to variable-rate borrowers. Some have 'collars', limiting how far tracker mortgages drop.

Other lenders, such as Woolwich, Nationwide, Halifax, Lloyds and Skipton, are more generous, revealing plans yesterday to pass on the full 0.5 point cut.