Savings rates are tumbling just as Brits start setting aside more money each month.
Figures from the British Bankers' Association show that we saved a total of £4bn during December, considerably higher than the six-month average of £1.3bn.
However, around half (47%) of all UK
savings accounts now pay less than 1% interest, according to uSwitch, with one in six offering below 0.1%.
This represents a sharp fall since last summer, when savings rates of up to 7% were widely available.
Base rate to blame
The Bank of England has repeatedly cut the base rate in a bid to rejuvenate the economy, but it has had devastating repercussions for
savers.
As the table below shows, there are now 23 accounts on the market paying less than 0.05%.
Assuming someone deposits the national average savings balance of £2,813 in such an account, they will earn just £1.41 a year in interest.
|
Interest Rate
|
Number of Accounts
|
Total
|
|
0 – 0.05%
|
23
|
2.00%
|
|
0.051 – 0.1%
|
131
|
14.00%
|
|
0.11-0.5%
|
175
|
19.00%
|
|
0.51-0.81%
|
57
|
6.00%
|
|
0.811-1%
|
56
|
6.00%
|
|
1.01%-1.5%
|
126
|
13.00%
|
|
1.51-2%
|
107
|
11.00%
|
|
2.01-3%
|
170
|
18.00%
|
|
3.01-3.5%
|
57
|
6.00%
|
|
3.5%+
|
36
|
4.00%
|
Source:uSwitch
Battle to beat inflation
Such has been the dramatic decline in rates that just one in ten accounts now pay more than 3% interest to savers.
Given that inflation is still at 3.1%, this means many savers are essentially losing money in real terms.
One of the best ways to beat inflation is to filter your savings into a
regular savings account. These can pay anywhere between 5 and 10%, although you will need to be studious in your savings habits or the rates will fall sharply.
For example, you have to deposit the same amount of money – usually between £10 and £500 - every month, so it is usually a good idea to set up a direct debit.
Another good way to ensure you beat inflation is to switch current accounts to one that pays a better interest rate –
Alliance & Leicester's Premier Direct account has a 6.5% rate on the first £2,500 in your account.
