Long-term savings rates hit an all-time low
LONG-TERM fixed ISAs and bonds are now offering their lowest ever interest rates, just one month since the Bank of England slashed its base rate to a record low of 0.25 per cent.
Interest rates on long-term savings accounts have been falling consistently over the past 11 months, driving three-year bonds to just 1.32 per cent, down from 2.09 per cent in September 2015, according to new data from Moneyfacts. Four-year and five-year bonds are now offering average returns of 1.49 per cent and 1.73 per cent, down from 2.39 per cent and 2.64 per cent this time last year.
Meanwhile, long-term fixed rate cash ISAs are not faring much better. Last September, three-year, four-year and five-year ISAs paid an average of 2.04 per cent, 2.36 per cent and 2.57 per cent respectively. Now, rates have dwindled to 1.32 per cent, 1.51 per cent and 1.73 per cent.
In response to market uncertainty and the slowing economy, banks have been cutting interest rates on instant savings accounts and current accounts – and RBS has even introduced negative interest rates on some accounts. However, fixed term bonds and cash ISAs have always been viewed as safe havens for conservative savers.
Earlier this month, Hargreaves Lansdown announced that it had seen a 50 per cent increase in cash ISA transfers to stocks & shares ISAs during August 2016, compared with August 2015, and other peer-to-peer lenders have noticed a surge of interest as retail investors look for better returns.
“The majority of savers have virtually given up on the prospect of an interest rate rise any time soon, never mind a return to pre-crisis levels,” said Kevin Caley, founder and chairman of ThinCats.
“The recent slashing of savings rates we saw in August, across more than 300 accounts, will have been a hard pill to swallow for many people, especially those who have put money away for most of their lives and were hoping to get a reasonable income in their later years through savings.”