Further misery for savers as base rate slashed to 0.1%
Savers face further misery from the Bank of England base rate being slashed from 0.25% to a new historic low of 0.1%.
It comes just days after the rate was slashed by half a percentage point on March 11, taking it from 0.75% to 0.25%.
Experts said savings providers have already been chopping their rates in recent days in response to the recent cut.
But they said that with rates already so low, and the latest rate cut being less steep than the one earlier this month, hopefully some savings providers may decide to absorb the latest cut rather than stamp returns down further.
Eleanor Williams, a finance expert at Moneyfacts.co.uk, said: “This will be further devastating news for savers who are already seeing returns plummet across the market.
“We have already seen easy-access rates fall since the 0.50% base rate reduction on March 11 and product cuts are still filtering down from providers. Hopefully providers will attempt to absorb this smaller cut to the Bank base rate.”
The average easy-access savings account on the market pays 0.54% for someone who has £10,000 to put away, according to Moneyfacts, down from 0.56% on March 11.
The average easy-access Isa pays 0.82%, down from 0.84% on March 11, Moneyfacts said.
Meanwhile, website Savings Champion said that, following the previous cut to the base rate by 0.50 percentage points, fixed rates from many of the best-paying providers were immediately withdrawn with new lower rates made available – if at all.
It said that 46 providers had withdrawn 251 fixed-term bonds and cash Isa accounts, many of which were “best buys”.
Anna Bowes, co-founder at Savings Champion, said: “There’s no doubt that we may see a flight to safety in the current climate, with more people hoarding cash that was earmarked to spend elsewhere.
“If you are building a new nest egg or have existing money in cash then it’s wise, even in this low-interest rate environment, to make that money work as hard as it can.
“What we hope is that in the current situation NS&I (Treasury-backed National Savings and Investments) could be mobilised to help the Government raise money to support the economy and help beleaguered savers.”
The Monetary Policy Committee at a special meeting on 19 March voted to cut Bank rate to 0.1% and increase its holdings of UK government and corporate bonds by £200 billion. https://t.co/rbpUGU0blr
— Bank of England (@bankofengland) March 19, 2020
Sarah Coles, a personal finance analyst at Hargreaves Lansdown, said: “This is yet more bad news for savers, who are very likely to see savings rates fall.
“If you are relying on savings interest to support your income, things looked difficult enough after last week’s cut, so this new move will be the last thing you need.
“You don’t need to watch your interest rate be reduced to rubble though, because the best rates will always be available to those who are prepared to shop around.”
Variable-rate mortgage holders whose home loan is directly tied to the base rate will see their payments reduce.
For homeowners on a standard (SVR) rate mortgage, it is the lender which sets the rate, so they will need to wait and see if the latest rate cut is passed on in full.
Fixed-rate mortgage holders will not see any immediate change in the size of their monthly mortgage repayments.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “In essence, we have zero interest rates.”
He continued: “Base rate trackers for new customers will come down in pricing as long as lenders keep margins the same…
“The underlying cost of swap rates, which drives fixed-rate pricing, is also extremely low, so more competitive rates will follow.”