Experts predict little reprieve for savers in 2010. The past 12 months have been a bleak time for savers, with the Bank of England’s base rate dropping from 2% at the start of 2009 to 0.5% in March. This rate marks an all-time low since the formation of the Bank in 1694 and is still in effect at the present time.
Low savings rates
Rates on savings accounts have been squeezed to reflect the low Bank rate, leaving even the most careful savers with a poorer return than they might have hoped for. Just 12 months ago, savings accounts offering 5.6% or higher were not unheard of. Now, research suggests that the average rate for instant-access savings accounts is just 0.78%, meaning that even a large investment will earn a barely noticeable sum.
Savers setting less aside
Meanwhile, the amount set aside by consumers has also fallen. A recent report by unbiased.co.uk revealed that a total of £13bn was saved during the third quarter of 2009, which is significantly lower than the £19bn set aside in the previous three months. Separate research from Abbey Savings suggests that 20% of people have no savings whatsoever, while 39% have not managed to save anything since the start of 2009. Among those who are still setting some money aside, the average amount saved is just £198 per month.
One reason for this may be that many are recognising the need to pay off existing debts. Recent research by the British Bankers’ Association revealed that consumers cleared £5.9bn from their credit cards in November and a report from the Bank of England suggested that the low interest rate environment is allowing people to reduce their outstanding balances.
Immediate outlook
Minutes from the Monetary Policy Committee’s latest meeting show that members voted unanimously in favour of maintaining the base rate at 0.5% in December, suggesting that there is little chance of interest rates rising in the immediate future. Savings rates will not rise until the base rate changes, and this will be dependent on the outlook for inflation.
A recent survey of economists by Reuters found that respondents typically expected the Bank rate to remain unchanged until July 2010 at the earliest, with a 1.0% rate predicted for the end of the year. However, some economists believe the 0.5% low could be maintained throughout the next 12 months, meaning that earnings on traditional savings accounts may continue to be unimpressive.
Switching
While the picture remains gloomy, some consumers can make small improvements to their balance sheets by moving their money into an alternative savings account. For instance, David Black, from data firm Defaqto, told the Times that savers may want to take advantage of accounts with introductory short-term bonuses. However, he pointed out that, while it makes sense to benefit from such offers, savers should ensure they know when their bonus period ends and move their cash if necessary.
Sensible saving
For consumers who are looking for a suitable place to hoard their savings, some of the best deals may be found in the form of fixed-rate bonds. Many of these have started to offer more attractive returns as banks and building societies are keen to get their hands on savers’ cash. By agreeing to leave their cash in one place for an extended period of time, savers will typically give themselves a better chance of earning a relatively decent rate of return.
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