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Savers are paying the price of Funding for Lending

Savers are paying the price of Funding for Lending

Category: Savings

Updated: 30/10/2017
First Published: 31/07/2014

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 It is now over 6 months old so the content may be out of date.

There's no getting away from it – savings rates aren't exactly setting the world on fire. They've been falling for years, a pattern largely blamed on the Government's ill-fated Funding for Lending Scheme (FLS), launched in the summer of 2012 and touted as a way to kick-start the housing market.

While it might have helped in that respect, it sounded the death knell for savings rates, all of which have been on a downward spiral ever since. It was hoped that its withdrawal in January would reignite the savings sector again, but unfortunately, that expectation has been just as ill-founded.

Now the dust has settled, Moneyfacts has analysed what – if any – impact the withdrawal of the FLS has had on the savings market. And the news is bad. Far from starting to improve, average rates across virtually all savings products are still falling. The table below shows just how low they've gone.

Aug-12 Jan-14 Today
Average No Notice Account 1.09% 0.64% 0.66%
Average Notice Account 1.61% 0.93% 0.85%
Average One-Year Fixed Rate Bond 2.77% 1.54% 1.41%
Average Two-Year Fixed Rate Bond 3.29% 1.80% 1.74%
Average Five-Year Fixed Rate Bond 3.79% 2.63% 2.59%
Average Cash ISA 2.41% 1.64% 1.56%
Source: Compiled: 30.7.14

"Any faint hope that savings would revert to pre-FLS levels are well and truly dashed, and those that clung to the idea that at least it won't get any worse were wrong, too," said Sylvia Waycot, editor at

"The catastrophe that savers need to deal with is that average rates on all but no notice accounts are still falling.

"If you had invested £1,000 in an average one-year fixed rate bond before the launch of the FLS, it would have earned £27.70 in interest. By January, an equivalent bond would earn just £15.40, but today even that has fallen to a paltry £14.10."

It's a worrying trend, and it isn't showing any signs of reversing. Even the hoped-for mini ISA season, widely expected when the tax-free limit was increased to £15,000, failed to materialise, with the average cash ISA rate still falling.

These days, the only way to get a measurable return from your money is to invest differently. Opting for longer-term bonds will offer the best rates – but you may want to be cautious about tying up your money for too long given an increase to base rate is on the cards – or what about the likes of stocks and shares ISAs?

There are a lot of other options you may want to consider too, but as Ms Waycot adds, it'll take some careful thought: "Britain is on the verge of a savings revolution where riskier methods of getting a return are becoming more commonplace.

"However, before considering new options, such as peer-to-peer platforms, savers need to be comfortable with the principles of risk and reward. For some, it's a great opportunity, but the simple fact is that it doesn't suit everyone.

"Savers worried about their money being safe are unfortunately stuck with miserably low interest rates, but better that than put their savings at risk."

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.