Savings interest hits record low
Updated on 12 January 2009
Returns on savings dived to a record low in December, with deposit accounts now paying average interest rates of less then 1%, official figures have shown.
The interest paid on notice accounts, tax-free ISAs and bonds last month was the lowest since records began in 1995, while the average return on instant access accounts was just 0.81%, according to the Bank of England.
The rates look set to tumble further, as savings providers typically pass on any base rate reduction on the first day of the following month, meaning that both December's 1% cut and last week's 0.5% reduction have not yet been factored in.
But what was bad news for savers was good news for borrowers, with mortgage rates continuing to come down, leaving the cost of a tracker mortgage at a five-year low.
Instant access accounts now offer the lowest returns at an average of 0.81%, the lowest level since November 2003, and down from 1.68% at the end of November.
Accounts that require savers to give notice before they withdraw their cash are little better, offering average interest of 0.82% in December, the lowest level since the Bank began keeping records in the current format and a sharp drop from the 2.3% offered during the previous month.
But tax-free Isas saw the most dramatic month-on-month drop, with rates diving by 1.74% to 2.09%, the lowest average rate since the products were launched in April 1999.
Bonds offered the best returns at the end of last month, at an average of 3.02%, but even this was the lowest rate on record and down just over 1% compared with November. The returns are also less than half the recent high of an average of 6.15% in October 2007.
Michelle Slade, an analyst at Moneyfacts.co.uk, said: "The figures are no great surprise. Rates have been coming down quite dramatically in the last four months. This proves that savers are being penalised at the moment and are struggling to find accounts that pay good returns."
Retired people who rely on returns from their savings have been particularly hard hit, as it is now virtually impossible to get a real return on savings once tax and inflation have been taken into account.
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