Piggy bank with bandage isolated on pink backgroundThe UK’s beleaguered savers, will have been left disappointed by the last public appearance of the outgoing Governor of the Bank of England.

Speaking to the Treasury Committee, Sir Mervyn King said that interest rates were “nowhere near” returning to “normal”.

He went on to say that an increase to interest rates and the unwinding of the Quantitative Easing program would only start have a significant improvement to the economy.

Over the past few weeks, the world’s stock markets have been hit, following concerns that a similar program of economic stimulus in the

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United States, is due to come to an end. However, Sir Mervyn warned: “I think people have rather jumped the gun thinking this means an imminent return to normal levels of interest rates. It doesn’t.”

“Until markets see in place policies to bring about that return to normal economic conditions, there is no prospect for sustainable recovery and without that prospect for sustainable recovery, markets understand that it will not be sensible to return interest rates to normal levels.”

Indeed, the outgoing Governor has previously been a fan of expanding the existing Quantitative Easing programme, but was outvoted by the other members of the Monetary Policy Committee.

Triple whammy for savers

The pain caused by low interest rates and Quantitative Easing, which has also pushed down Annuity rates, has been exacerbated by the introduction of Funding for Lending Scheme in August last year.

The scheme is designed to give a cheaper source of finance to banks and building societies and in turn encourage more lending to individuals and businesses. However, the jury is still out on whether it is making it easier to borrow. The unintended consequence however, has been a slump in savings interest rates, as banks and building societies have shunned savers deposits preferring to raise money from the government backed scheme.

It is now impossible for taxpayers to find a savings account which pays enough interest, after tax, to beat inflation.

When it comes to ISAs (Individual Savings Accounts), the only option to beat inflation is First Direct’s Cash ISA. But this account has a minimum balance of £40,000, making it suitable only for Cash ISA transfers.

Non-taxpayers don’t fare much better. The only accounts beating inflation require savings to be tied up for at least three years and a very large on-going balance.

Whilst savers are used to having to work hard to find the best savings interest rates any hope that rates might rise in the short term are likely to have been dashed by today’s comments from Sir Mervyn King.

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