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Low interest rates have eroded £50bn from savings

Low interest rates have eroded £50bn from savings

Category: Savings

Updated: 07/07/2011
First Published: 07/07/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Tens of billions of pounds have been wiped off the value of UK savings in the past year because of rock bottom interest rates.

The Bank of England's Monetary Policy Committee (MPC) will report the results of its July meeting later today, when it is expected to confirm that the Bank rate will remain at 0.5%.

While the rate – which was first cut to 0.5% in March 2009 – has helped keep many homeowners' heads above water as repayments have dwindled, savers have seen their returns diminish.

Figures from Moneyfacts.co.uk released last week showed that average mortgage rates have fallen to their lowest level since 1998.

The Save Our Savers group has taken the decision to write to the MPC, urging the members to raise the rate to help combat relatively high levels of inflation.

It said it took the decision to highlight 'the pain being endured by savers and those on fixed incomes'.

In a letter to all nine of the rate setting committee, the action group said: "Inflation has reduced the real value of the nation's cash savings by more than £50 billion over the past 12 months.

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

"For many this is not a temporary setback. Its effect will permanently reduce the value of their future income.

"A country without savings is a country without a future."

Despite the plea, Save Our Savers is pessimistic on the prospects of a rise in rates anytime soon.

"What we can be certain of is that all but Martin Weal and Spencer Dale will vote to keep Bank rate at just 0.5%," it predicted.

The likelihood of an increase in rates has been hit by figures showing the recovery in the economy is still on an unsure footing, while the MPC's longest standing supporter of rate increases, Andrew Sentance, recently ended his nine-month stint on the committee.

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