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Funding for Lending extension: where can savers turn?
We reveal which providers offer the best rates for squeezed savers.
The Government has announced today that it will extend its Funding for Lending scheme (FLS) to give a helping hand to small businesses and households in a bid to drive the UK economy.
In response to the announcement, Matthew Fell of the Confederation of British Industry, said: “Funding for Lending is already making a difference to the housing market and there are signs that it is starting to lower the cost of finance for business.
“The additional incentives for banks should accelerate activity in the small business financing market.”
However, despite the extenstion being widely welcomed, it is a further blow for struggling savers.
Interest rates have hit rock bottom as banks no longer need to vie for people’s savings in order to be able to lend to businesses.
This is having a catastrophic effect on savers’ pots of money, as interest rates barely pay above 2% interest rate while inflation continues to hover around 2.8%.
Kevin Mountford, head of banking at MoneySupermarket.com, said: “The Funding for Lending Scheme has witnessed a positive impact on the mortgage market since it was launched last August with borrowers benefitting from some of the lowest mortgage rates in history.
“However, fees for lower rate mortgages can be high therefore borrowers should shop around and consider the total cost of their borrowing before settling for a market leading rate.
“The downside to the scheme has been lack of competition in the savings market with banks turning their attention to borrowing. Savers have suffered from low rates that have struggled to beat inflation and with the announcement that the scheme is to be extended for a year, the outlook for those wishing to invest remains bleak.”
According to the analysts at savingschampion.co.uk, since the introduction of the FLS scheme the rates paid on instant access accounts have fallen by 38%.
Before the scheme was wheeled out the best accounts paid 3.25% whereas today savers will be lucky if they get above 2%.
As a result money held in the vast majority of savings products is losing money in real terms once tax and inflation have been taken into account.
Mountford added: “Savers can still take action however, by reviewing their current rates and by taking advantage of their tax free allowance which has increased this year to £11,520. The allowance can be split with £5,750 being invested into a cash ISA with the remainder available to invest in a stocks and shares ISA.”
Top 5 Easy Access Savings – Based on a £1,000
| Provider | Account (T&Cs apply) | Min. Deposit | AER | Bonus |
| Leeds BS | Flexible freedom | £500 | 2.00% | n/a |
| Nationwide BS | eSavings Plus | £1 | 2.00% | n/a |
| Manchester BS | Platinum Easy Acess Account | £1,000 | 1.81% | n/a |
| West Bromwich BS | Branch Easy ACcess Saver Issue 3 | £1,000 | 1.8% | n/a |
| ns&i | Income Bonds | £500 | 1.76% |
n/a |
Top ISAs – based on £5,760
| Provider | Account (T&Cs apply) | Min deposit | AER | Bonus | Bonus period |
| Nationwide BS | Flexclusive ISA (issue 3) | £1 | 2.50% | 1.00% | 30/11/2014 |
| Vernon BS | Triple Access ISA | £10 | 2.50% | n/a | n/a |
| Cheshire BS | ISA Saver (issue 3) | £1,000 | 2.30% | 1.80% | 31/10/2014 |
| Cheshire BS | Isa Saver (issue 1) | £1 | 2.25% | 1.75% | 31/10/2014 |
| Derbyshire BS | Easy Saver ISA (issue 1) | £1 | 2.25% | 1.75% | 31/10/2014 |
Fixed Rate Bonds – based on £10,000
| Provider | Product | Term | Min. Invest | AER |
| Agri Bank | Fixed Rate Bond | 5 years | £10,000 | 3.60% |
| Agri Bank | Fixed Rate Bond | 4 years | £10,000 | 3.50% |
| Agri Bank | Fixed Rate Bond | 3 years | £10,000 | 3.35% |
| Skipton BS | E-Bond | 5 years | £500 | 3.00% |
| FirstSave | Fixed Rate Bond 2nd Issue | 5 Years | £5,000 | 2.90% |
Source: moneysupermarket.com 24/04/2013
