Savers facing ‘summertime of sadness’ can still build financial safety net

Savers have been warned that they face a “summertime of sadness”, with banks and building societies continuing to slash the interest rates they pay on accounts.

The financial information firm Moneyfacts said that since the Bank of England cut the base rate to only 0.1% in March, the average rate on an easy access account had halved to a record low of 0.3%. Meanwhile, returns on one-year fixed-rate savings bonds were on the verge of a new low, at an average of 0.92%.

However, it said the full fallout from the Bank cut may not have been felt and more cuts could be on the way.

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The reductions come at a time when some households are finding they have spare money to put into savings and want to build up a financial safety net.

Research by Aviva found that while a quarter of adults felt they were unable to save, many households could have extra money to put aside as a result of a drop in spending during the coronavirus crisis. It said the typical UK household could have cut their outgoings by £171 a week.

Anna Bowes, a co-founder of the Savings Champion website, said although savers may feel things are “hopeless and there’s nothing they can do”, it could still be worth shopping around.

Some high street banks have cut rates to as little as 0.01% and there are better deals to be found. Among the deals savers could consider are:

NS&I’s income bonds. This is an easy access account that pays out monthly interest – it is currently still paying 1.15% before tax. The minimum investment is £500 and you can hold up to £1m. Your money is backed by the Treasury. The rate is not fixed.

Variable rates are still vulnerable to further cuts, so some may prefer to tie up at least some of their money in fixed-rate bonds, Bowes says. She says the best one-year account is with Ikano Bank, paying 1.21%. That needs a minimum deposit of £1,000. Up to £85,000 in savings is currently protected under the Swedish deposit protection scheme (from 1 January 2021 people’s money will be protected up to the same level by the official UK deposit protection scheme).

If you would prefer to tie your money up for longer, the rates are a little better. Ikano Bank is also paying the best rate over two years: 1.31%.

Among the best-paying easy access accounts highlighted by the Savers Friend website is Family building society’s market tracker saver, which pays a rate that is the average of the top 20 no-notice accounts available. The variable rate is currently 1.13%, although the society warns that it will fall below 1% in July. The minimum deposit is £500. 

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