With the rate of inflation now slowing, having seemingly peaked a few months ago, the attention of savers has turned to the all time low interest rates they are getting on their savings.
Over the past few years savers have been caught in a perfect storm of low interest rates and relatively high inflation. For many this has meant a real terms fall in the value of their savings, even if they worked hard to find the best savings interest rates.
Many savers believe that one man, or at least the committee he runs, holds the key to low interest rates; however the views expressed yesterday by Mervyn King, Governor of the Bank of England, will have disappointed many savers.
Help for savers ruled out
Speaking yesterday Mr King ruled out help for savers who are receiving “negligible” returns on their savings.
In a press conference Mr King said: “I have deep sympathy with those who are totally unconnected with the origins of the financial crisis who suddenly find that the returns on their savings have reached negligible levels.”
He continued: “These are consequences of the painful adjustment prompted by the financial crisis and the need to rebalance our economy.”
He went on to say that the Bank’s Monetary Policy Committee, which sets interest rates, could increase rates, but this would push up the exchange rate, whilst depressing consumer spending and investment.
It is clear savers cannot expect any rise in interest rates in the near future.
Financial experts believe that the Bank is sacrificing savers for the good of the wider economy, meaning savers will have to continue to work hard to find the best savings interest rates if they are to stand any chance of getting a real return on their money.
The effects of Quantitative Easing
Financial experts are warning that the public is becoming more and more uneasy with the effects on their own personal finances of the Bank’s Quantitative Easing (QE) program, which was last week increased to £325 billion.
The effects of QE hit would be retirees and pensioners the hardest; pushing down interest rates and Annuity rates, as any pension Annuity calculator will show you.
Saga have produced figures which estimate more than one million people have retired on permanently lower incomes due to the effect QE has had on Annuity rates. A few minutes spent on a pension Annuity calculator will show you the current Annuity rate applicable to your own circumstances.
Savings rates damaging the economy
Mr King also said that rising savings rates were one of the factors damaging the UK economy.
As the recession bit hard many people cut spending and started to save, building up a nest egg to use if the economy got worse or unemployment hit.
Mr King said: “One of reasons for slow growth in the last year was weakness of consumer spending and higher savings by household.”
Although the amount we save has fallen back since the end of the recession the Bank’s latest Inflation Report shows that households are still saving an average of 6.6% of their disposable income, well above the levels seen before the credit crunch of 2007.