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Savings rates dropped to a record low in February as providers continued to pass on interest rate cuts, figures from the Bank of England showed today.
Last month, the average branch-based instant access account paid interest of just 0.17%, while returns on branch-based notice accounts fell to 0.18%. Rates are likely to fall further as last week's 0.5 percentage point cut in the Bank's base rate filters through to savers.
Since last October the base rate has been slashed from 5% to 0.5% in a bid to prop up the ailing UK economy, and savers have suffered as a result. Last September the average rate on a branch-based notice account was 3.24%.
Rates on cash Isas have also taken a hammering, falling from an average of 4.49% at the end of September to 0.96% at the end of February – the lowest rate on such accounts since their launch in April 1999, and well below the peak of 6.67% in April 2000.
However, as the traditional Isa season gets into full swing, some banks and building societies are offering better rates to tempt savers in. Yesterday, Barclays launched the Golden Isa offering 3.55% gross to savers with upwards of £1. The rate, which includes a bonus of 1% for the first 12 months, is available until 5 April from branches, via the internet or over the phone.
Other savings providers are also offering tax-efficient Isas paying more than the average rate. Marks & Spencer Money's Advantage Cash Isa is paying 3.1% on balances of £100 or more – this includes a 1% bonus payable until 21 April 2010.
Savers willing to lock into a rate for four years can get 3.35% on balances of £500 or more paid into Halifax's Fixed-Rate Isa Saver.
Regular rates fall too
The rates are a far cry from those available in the run up to the close of the last tax year, when the average rate was 4.8% and some providers were paying as much as 6.5%, but they are still higher than those on equivalent accounts outside the Isa wrapper, even before the tax breaks are taken into account.
Separate figures produced by website MoneyExpert.com show rates paid on regular savings accounts have more than halved since this time last year, from an average of 5.56% last March to 2.64%. Only 11 regular savings accounts pay interest in excess of 5%, compared with 66 last March. The lowest rate offered on this type of account is from ethical bank Triodos, which pays 0% compared with 3.38% last year.
Sean Gardner, director of MoneyExpert.com, said: "Savers are bearing the brunt of the Bank of England's efforts to stave off a prolonged recession. Their pain might be a price worth paying if the moves work, but that is little comfort if you've seen interest rates slashed."
The Bank of England's figures also highlight how, while savers have suffered, new borrowers on variable rate mortgages have benefitted from falling interest rates, even though lenders have not passed on the full rate cuts.
In February the average rate on tracker mortgages for people with a 25% deposit fell to 4.31% – down from 4.51% in January and 6.12% at the end of September. The average standard variable rate (SVR) offered by banks and building societies fell from 4.73% to 4.41%. At the end of September the average SVR was 6.95%.
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