Hope you’re not looking to make your money work for you

Business banking news review: week ending 6 June 2013

Well here’s a real kick in the jaw if you’re trying to grow your savings pots: not only is your ‘best buy’ deal abysmal, rates are being slashed everywhere!

So let’s say you wanted to put aside your money for a year by taking out a fixed rate bond. You would think that, in exchange for locking away your funds for 12 months, you’d get an excellent rate – but you’d be terribly wrong.

The current ‘best buy’ for a one-year fix is, abysmally, only 2.0 per cent before tax. That’s an even more miserable 1.6 per cent after basic tax is taken into account – and on top of that you can’t even qualify for the savings account unless you brink £10,000 to the State Bank of India, the provider with the ‘offer’.

This is a terrible turn of affairs, considering that just last year you could have found a best buy with a 3.6 per cent before tax – and if you couldn’t qualify for that fixed rate bond, you could pick from a large field of 3 per cent pre-tax offers. Now, if you’ve got a bond that’s maturing you’re more or less out of luck if you’re looking to continue to grow your savings pot thanks to the rather awful state of the economy and how the nation’s banks are more or less telling us savers to jog on.

Of course, many savers have abandoned the High Street and have gone on to seek their fortunes elsewhere by taking up offers from local building societies instead, which have seen a surge in popularity for their marginally better interest rates. However, even as savers leave banks to join building societies in droves, these same financial service institutions are slashing the rates of return on nearly all their products!

There were plenty of building societies that have kept hope alive for years in regards to holding interest rates on savings products at relatively high levels. Some have even kept their rates of return unchanged from 2009, pre-dating the Bank of England’s base rate drop that wreaked so much havoc with savings providers. However, with the influx of savers depositing their money into these attractive accounts, competition has grown to such levels that building societies can comfortably cut their rates and still have no dearth of customers beating a path to their door.

Making matters worse is the fact that building societies don’t need to generate revenue through customer deposits nearly as much as they used to in years past. This is because the Funding for Lending scheme, a Government programme designed to increase availability of mortgages and business loans, has made it much less costly for building societies to simply borrow directly from the Government at cut-rate prices than it would to offer headline interest rates on savers’ deposits, and now there’s nowhere left for any savers looking to make their money work for them!

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