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Is the Funding for Lending Scheme harming savers?

Published 6 December 2012 by

Savings rates are on the decline, according to - and the government's Funding for Lending Scheme (FLS), which is designed to encourage banks to lend more, may be partly to blame.

Several of the lenders participating in the scheme have cut savings rates, despite the fact that the Bank of England's base rate - which helps decide the direction of interest rates - hasn't changed since March 2009.

Savers now need to find an account offering interest of 3.38% or higher (4.5% for higher-rate taxpayers) in order to keep up with inflation - but very few accounts offer rates this high. The only accounts that do keep up with inflation tend to lock money away for a certain time, which doesn't help people who are saving for emergencies.

Saving is still worthwhile

It's important to remember that even if you're struggling to find an account with a good interest rate, savings can still be a lifesaver in a financial emergency, and they should be a priority when it comes to budgeting.

Your money will still grow faster than inflation as long as you make regular contributions. It's only when you leave a single lump sum of money in your account that you might find the 'real' value (compared with inflation) starts to fall.

You should only worry about whether your savings are keeping up with inflation if you're actually looking to invest - and in that case there may be better options than a regular savings account for making your money grow.

Finding the right account

Of course, it still makes sense to find an account with the best possible interest rate, as long as that account meets your needs. If you're planning on using your savings regularly, then an easy-access account is essential. If you think you can do without your money for a while, then locking it away in a fixed bond could earn you more interest in the long run.

Similar advice applies to bank accounts. While some accounts provide interest on your balance, it is usually quite low compared with a regular savings account - and you may find that other benefits could be more valuable to you. For example, some accounts offer complementary travel insurance or gadget cover (sometimes for a small monthly fee).

The thinkmoney Personal Account is another option. It's an alternative to a bank account that helps you manage your money by putting money for bills and other commitments to one side at the start of the month. Whatever's left is placed in a 'card account' for safe spending.

The account is available for £17.50 a month (£24.50 for joint accounts), with a guarantee of no other charges for missed payments or going overdrawn.