Are savers set to face even lower returns on their money?
Published 1 August 2012
A cut in the base rate could hit savers hard when it comes to getting the best returns on their money held in current accounts. However, there are other accounts that could help.
Savers should brace themselves for lower returns on any money they have in easy-access accounts if the Bank of England decides to cut the base rate again, This is Money reports.
There are mounting concerns that the Bank will lower the base rate - a minimum standard for saving and borrowing - to 0.25%. What's more, there's a slight chance that the base rate could be cut as early as this week, as rate-setters find themselves under pressure to take action during the worst double-dip recession for a generation.
Vicky Redwood, chief UK economist at Capital Economics, said: "We have pencilled in an interest rate cut to 0.25 per cent for November. But there is a slim possibility of a cut this week."
The base rate is already set at 0.5% - and if it's lowered any further could hit a 318-year low. It's hoped that a reduced base rate will help to revive the economy, as it should encourage people to borrow money.
However, if the Bank does indeed decide to cut the base rate, savers are likely to be hit hard, as the interest they earn on money held in any current accounts will be pushed down along with it - giving them lower returns on their money.
According to Moneyfacts, within two months of the last rate cut - back in March 2009, when the base rate fell from 1% to 0.5% - savings rates fell by an average of 0.46 percentage points.
A spokesperson for thinkbanking commented: "The current climate is proving tough for many banking customers - and savers are no exception. With standard current accounts already offering low interest rates, a cut to the base rate could see savers getting even poorer returns on any money held in them.
"However, there are alternative bank accounts that could help. Savers could think about opening a high-interest savings account, for example, or if they're looking to make sure they can put some money aside every month without interfering with their bills and other essentials, a managed bank account could be ideal."