Savings rates plummet

It's true: banks and building societies really have been cutting the rates they are prepared to offer to savers, as a result of the government's much-trumpeted Funding for Lending Scheme.

Funding for Lending is supposed to give a boost to lending to homebuyers and businesses, by channelling billions of pounds in cheap money to lenders.

But what that means is that the lenders, in other words banks and building societies, don't have to raise so much from people like you and me trying to build up savings.

Competition has been extinguished.

This has been acknowledged by a senior Bank of England figure, Andrew Bailey (the one who used to sign our banknotes) in evidence to MPs today.

He said "What the introduction of the Funding for Lending Scheme has already shown us is that competition for deposits has eased off quite a bit actually, and that has been reflected in a change in the rate paid on deposits."

He said rates had been going up before the summer as banks competed hard to win our custom, but since then they had eased off.

Of course plenty of you have seen this effect on our High Streets and on internet websites already, and Moneyfacts has highlighted it - here as well.

More pain for savers

Banks and building societies are withdrawing special bonus rates for savers, leaving them struggling to find a decent return for their money.

Savings accounts often come with a first year bonus of around 1%, to add to the normal interest rate, to attract new customers.

But the number of easy access accounts offering bonuses has fallen from 73 to 46 since August last year. The number of notice accounts with bonus rates has more than halved: only 11 remain.

The financial information firm, Moneyfacts, blames the government's new Funding for Lending scheme, which is channelling cheap money to banks to encourage them to lend.

There's already been a drop in the underlying rates of interest on offer to savers.

Savings rates collapsing

Savings rates have started to "collapse" as a result of a government scheme to encourage lending, according to the financial information service, Moneyfacts.

The £80bn Funding for Lending Scheme (FLS), which allows lenders to borrow from the government at cheap rates, has reduced their need to raise funds from savers.

"The immediate knock-on effect has been the collapse of savings rates across easy access, notice accounts and fixed bonds," according to Sylvia Waycott from moneyfacts.co.uk.

"And the devastation hasn't been limited to just the providers who have joined the FLS."

The highest paying instant access savings accounts for someone depositing £10,000 is down from 3.2% in August to 2.5% now, with the average rate dropping below 1%.

Moneyfacts says that the average one year fixed rate account is down half a per cent to 2.24% since August. Average interest rates for Cash ISAs and notice accounts have fallen as well.