Savers feel pinch
Post by Mearns & Company in News
Those looking for income from their savings face an uphill challenge, with banks and building societies making swingeing cuts to the interest paid on leading accounts.
This latest round of rate reductions was started by National Savings & Investments (NS&I), which has imposed brutal cuts to some of its most popular accounts. From December 2020, Premium Bond holders, for example, will see their odds of winning a prize in its monthly draw lengthen from one in 24,500 to one in 34,500. Meanwhile, the interest paid on NS&I’s popular income bonds has reduced from 1.15% a month to just 0.01%. Even those with tax-efficient ISAs have been hit, with NS&I cutting interest rates from 0.9% to 0.1% on these accounts.
Cuts spread to the high street
Not surprisingly this shift has triggered a wave of similar reductions across the high street. The newer internet-only providers, such as the Goldman Sachs-backed online Marcus Bank, as well as more established names, such as the Coventry and West Bromwich building societies, have slashed their interest rates or removed savings accounts altogether.
Income seekers who are prepared to take more risk with their money are also facing difficulties, as dividends paid on many equities have also been squeezed. At least 35 FTSE 100 companies have cut, cancelled or suspended their dividend pay outs this year. In many cases this is because revenues have been hit by coronavirus lockdowns — meaning fewer surplus profits to distribute to investors.
Savers looking to boost returns need to be nimble when it comes to snapping up best-buys; good rates do not tend to last long. For example, the Skipton Building Society launched a best-buy easy-access account earlier this autumn. Demand meant it closed to new customers after just 48 hours.
Savers need to consider all their options. If you can afford to lock your money away you may get a slightly higher rate from a fixed-term bond, although this risks tying up your money at a time when interest rates are at an all-time low. Ensure you check the exit penalties before committing to a fixed-term fund.
If you have any questions or would like advice please use our contact page here.
The value of your investment, and the income from it, can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.