Savers losing out

The financial watchdog, the FCA, says that millions of savers are losing out by letting their money sit for years in accounts with low interest rates.

It is calling for ideas on how to encourage switching between accounts and to make it easier to compare interest on offer.

Banks and building societies take advantage of people's unwillingness to shop around by offering higher rates to new customers.

The average interest rate on easy access accounts opened in the last two years was around 0.8%, but that the equivalent rate for accounts that were opened more than five years ago was less than 0.3%.

The FCA highlights the fact that providers come out with new versions of savings accounts with higher rates and leave loyal customers languishing on the old rates. 

Many have attracted customers with bonus rates which only last a year.

But the watchdog also blames savers for not bothering to look for better deals.

It says they tend to keep their savings with the bank which provides their current account.

The average savings rate from leading current account providers is around 0.5%, but the equivalent rate offered by other providers is 1.2%.

King on suffering savers

The Governor of the Bank of England, Sir Mervyn King, has denied that he's sending out a message that it's not worth saving, despite the fact that the Bank has kept interest rates at just 0.5%.

He said he had to make "a difficult judgement about the right course of action for the economy as a whole." And added that all groups of society were suffering from the consequences of the financial crisis.

Sir Mervyn argued that a decision to raise interest rates sharply to help pensioners and others depending on their savings would backfire.

"We could put up interest rates to 4 or 5 percent and then maybe the return on savings will appear to go up," he said.

"But I'm absolutely confident that if we were do that we would see the value of assets...go down, that there would be a sharp rise in the exchange rate, that investment and consumer spending would fall. We would go back into a recession."

Sir Mervyn was presenting the Bank's latest inflation report.

Silver lining for savers

Today's grim news about the economy from the Bank of England has a silver lining for savers.

Cash in savings accounts has been shrinking in value, because virtually all interest rates are less than the rate of inflation.

But the Bank's Inflation Report suggests that Consumer Price Inflation (CPI), currently 5%, will drop to 2% and below in the second half of next year and to 1.3% in early 2013.

For savers, this means light at the end of a very dark tunnel.

Take two top-of-the-table accounts on Moneyfacts today, accounts which aren't distorted by bonus payments which get removed after a year.

West Brom Building Society has an internet account paying 2.8%, a money-shrinker at the moment. But potentially a money-grower if inflation does fall sharply next year.

Even with 20% tax taken off, the rate equates to 2.24%.

And you can get a similar return, tax-free, from Northern Rock's E-ISA.

For those prepared to lock their money away for 3 years, much higher rates are available: 4.3% from Yorkshire Bank, for instance, and 4.15% from the AA.

Don't expect fireworks from interest rates. Most pundits think the Bank of England's base rate will stay at 0.5% until 2013 and possibly beyond.

But at least the pain for savers could start to ease.

Savers desperate for rate rise

A group of campaigners working on behalf of savers has called on the Bank of England's Monetary Policy Committee to raise interest rates to help pensioners and encourage saving.

Save Our Savers says a country without savings is a country without a future.

And it warns that those on fixed incomes, such as pensioners, are suffering terribly from the combination of extremely low interest rates and above target inflation.

The group has written to all nine members of the Monetary Policy Committee, who are expected to leave the Bank's base rate at its historic low of 0.5% after meeting today and tomorrow.

The letter complains that the real value of the nation's cash savings has fallen by £50 billion over the last 12 months as a result of high inflation and low rates.