The light at the end of a very long tunnel could finally be in sight for savers.
Two Bank of England schemes giving banks and building societies a cheap source of money are set to end, and lenders could once again have to look to savers.
A rise in Bank of England base rate from its current 0.5 per cent to 0.75 per cent is on the cards for later this year – which will also work in savers’ favour.
Better rates? Two Bank of England schemes giving banks a cheap source of money are set to end – and lenders could once again have to look to savers
And with more new banks set to arrive this year, competition for our money could increase further still.
But experts warn not to expect rates to rocket. Instead they will continue their gradual climb.
Rates have already started to edge up. A year ago, the best you could earn on your easy-access money was 1.01 per cent.
Now it is 1.3 per cent from RCI Bank. The top one-year fixed-rate bond from Atom Bank is 1.95 per cent, up from 1.4 per cent a year ago.
The Bank of England first offered banks and building societies the chance to borrow money from it at rock-bottom rates close to base rate back in August 2012.
Its Funding for Lending scheme was designed, after the financial crisis, to encourage them to lend.
Four years later came the second, concurrent Term Funding scheme along with the cut in base rate from 0.5 per cent to 0.25 per cent in August 2016. Its aim was to encourage banks to pass on the lower interest rates to borrowers.
Both schemes are closing – the Funding for Lending one today, and the Term Funding scheme on February 28.
Choosing where your money goes: With more new banks set to arrive this year, competition for our money could increase further still
It is hoped that providers will turn once more to savers. But it won’t be immediate. Banks and building societies, which have taken £150billion from both schemes, are still awash with funds and will only turn to savers once they have used them up.
And even though they can’t borrow any more through the schemes, they have four years from the time they initially took any money to pay it back.
The schemes have been a disaster for savers. With cheap money on tap, providers no longer needed them.
Rates tumbled from an average 1.03 per cent in July 2012 to 0.48 per cent today for new savers.
Fixed-rate bonds are down from an average 2.57 per cent to 1.18 per cent for one year.
Kevin Mountford, chief executive of Raisin UK, which helps new banks to raise money from savers, says: ‘The end of these Bank of England schemes won’t open the floodgates to better rates but we should see them edge up as some banks and building societies look to savers for funds again.’
Giles Hutson, director at Insignis Cash Solutions, which seeks out good accounts for your cash savings, says: ‘Big banks still have plenty of money in their coffers. But 2018 is the turning point.
‘It is the first time for a long time that providers will have to turn to savers.’
Savers are also seeing their nest eggs lose spending power. The cost of living is rising by 3 per cent, as measured by the consumer prices index. No single savings account matches this rate, let alone beats it.
But inflation, experts say, has peaked and should start moving down towards the Government target of 2 per cent.