Low interest rates put consumers off saving
A fifth of non-savers said interest rates are so low at the moment it is not worthwhile them setting money aside. Half of these consumers previously saved, but now don’t see the point because of languishing rates.
Out of those who say low interest rates are responsible for their failure to save, annual interest of £222 per year would kick-start their savings habit again. However, further insight has revealed that consumers require a hefty deposit to earn this amount in interest even with leading cash ISAs, easy access savings accounts or fixed rate bonds.
For example, NS&I’s Direct ISA offers an AER of 1.50 per cent, however savers still need to invest a whopping deposit of a £14,669 to amass an annual interest amount of £220. Similarly, BM Saving’s Online Extra, and RCI Bank’s recently launched Freedom Savings Account both offer an AER of 1.50 per cent, meaning a deposit of almost £15,000 is required to build up just £220 in interest over a year.
Anyone opting for a fixed rate bond would still need a sizeable deposit too. Secure Trust Bank’s Fixed Rate Bond has an AER of 3.01 per cent so savers need £7,325 to accrue interest of £220, but they would need to tie up their savings for five years to achieve this.
“Savers have suffered for some time now due to low interest rates, but it’s really concerning that this has stopped some people saving altogether,” said Kevin Mountford, head of banking at MoneySuperMarket.
“Saving a little amount money is far better than saving none at all. ISAs come with tax free benefits, so it is worth stashing some cash away, even if the interest isn’t quite what you’d hope for. In addition, ISA rates have slowly begun to creep up, and hopefully we’ll see this continue, and providers will start ramping up their offerings as a result.
“Comparing rates that are on offer is crucial, many of the best buy accounts come from newer, challenger banks therefore, savers should consider their loyalties to the main banks if there’s better on offer elsewhere. Deposits into most of the newer brands would be covered by the Financial Services Compensation Scheme, posing no risk to savers looking to move.
“Alternatively, current accounts are an attractive alternative to save money, and many providers are taking advantage of the poor savings rates at the moment by increasing their offers and benefits to entice customers. Now you can earn as much as £150 cashback just for switching, and several current accounts pay better rates than some savings accounts at the moment, so it’s worth considering these to get more for your money.”