Funding for Lending scheme bins savings rates

The Bank of England’s recently-launched Funding for Lending scheme has had the unfortunate knock-on effect of sending interest rates on the nation’s savings accounts into a nosedive as lenders bin many of their higher-paying deals.

The £80 billion scheme was supposed to stimulate the economy by making it less expensive for lenders to secure funding wholesale, provided these same lenders agreed to pass on the savings to anyone seeking mortgages, business loans, or personal loans. Of course now that banks and building societies have access to cheap cash, they no longer need to drive savings product take-up quite so aggressively – leading to lenders to toss their savers under the bus.

Coventry Building Society, ING, and Santander have all slashed rates on savings products over the past two weeks. Coventry’s former 3.25 per cent best buy now only carries a 2.8 per cent rate of return, ING’s top easy access saver now only carries a 3.05 per cent interest rate instead of its former top-paying 3.19 per cent, and one of Santander’s deals, a 3.3 per cent ISA, was completely scrapped, only to be replaced with an offer 0.3 percentage points lower.

It just goes to show that no good deed by the Government goes unpunished. Sure, the Funding for Lending scheme may build up the economic recovery by practically forcing banks to give up some of the cash they’ve been hoarding since the onset of the credit crisis, but lenders are leaving savers high and dry as a result, and just as the inflation rate had dropped low enough to offer real returns on many savings products.

Lack of savings activity is a serious problem in the UK – many Brits have little to put away at the end of every month because of jobs losses or wage reductions – and this isn’t going to help anyone looking to grow their savings pots.

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