The £120 extra that people are able to put into a cash ISA that was announced in George Osborne’s autumn statement could work out at an increase of just £1.05 a year. Because of the staggeringly low rates of interest that are available at the moment, with not only the Bank of England maintaining a record low 0.5% base rate but the banks also slashing their rates, the rise in the ISA limit makes very little real difference.
The chief UK economist at Capital Economics, Vicky Redwood, believes this situation is not likely to change in the near future either: “Base rate will stay at 0.5 per cent until mid-2015. Banks have only just started taking money from the FLS and we expect the effects to persist.” The Funding for Lending Scheme (FLS) is relevant as the banks no longer need to rely on the money that people deposit into savings accounts to get income, instead able to draw on funds from the Bank of England.
This is a view backed up by the Ernst & Young ITE M club: “Base rate will not rise for several years. We expect lenders to tap in to the FLS in a reasonably large way as a cheap source of finance. Unfortunately, this has a knock-on effect for savers.” It all means that savers need to do more research to make sure they are getting the best rates possible, especially when looking at savings accounts. Because of the easy access to funds, banks are cutting the rates on their loans and mortgages, making it much easier for consumers to borrow money, even though savers are still being hit.
There are plenty of places that consumers can go to check the best deals, but saving is nowhere near as useful a part of a financial portfolio as it was a few years ago.