It’s too early to say if the Funding for Lending Scheme is working for borrowers but the impact for savers is disastrous. Providers have slashed rates for new savers by up to 1.40% in the last month alone.
Recent figures on the Funding for Lending Scheme (FLS), have confirmed which providers have participated and how much they have borrowed from the Bank of England so far.
Out of the £80bn that is to be made available, by the end of September 2012 the 35 participants had borrowed £4.4bn, with net lending up £0.50bn. However, according to Paul Fisher, Executive Director for Markets at the Bank of England, apparently “it’s still too early to use this data as a reliable indication of the impact of FLS on lending volumes.” In other words, it’s still too early to know if it’s working.
We might have to wait longer to see the impact on borrowers, but we’ve certainly seen the effect on new savers in the form of slashed interest rates on new issues of accounts, and now a rising trend of rate reductions for existing customers.
For example, The Lloyds Banking Group recently decimated rates on ISA accounts offered by Halifax, BM Savings, AA and Saga - chopping as much as 1.40% from the rates for new customers. In addition, BM Savings, AA and Saga also withdrew their easy access accounts without replacing them – so new savers simply have to look elsewhere. Sign up for our Rate Alerts if you want to be kept up to date as it happens.
More worryingly, some providers have announced rate cuts which affect existing savers, as well as new issues of accounts.
These include FLS participants, such as Bank of Scotland, Julian Hodge Bank, Manchester Building Society, Melton Mowbray Building Society, Skipton Building Society and West Brom Building Society, all of whom have cut or announced cuts to some of their existing savings accounts.
Savings providers are not just bringing down the shutters; now they’re locking the doors. The latest move by the Lloyds Banking Group members emulates Santander’s rate slashing last month. And now a flurry of providers are cutting existing customers rates and even closing accounts altogether for new savers without replacements or alternatives. These providers are clearly indicating that they are awash with cash and don’t need savers' money.
The trickle of rate reductions for existing customers may become a torrent, if early indications are anything to go by. Next year could be even tougher on savers who will need to work harder than ever to keep on top of their savings accounts. The simple truth is that savers need to remain vigilant in order to make sure they earn as much interest as possible, or they could watch the interest they earn turn from pounds to pence. Inertia continues to be the savers' nemesis, but they can’t afford to sit back anymore.
Signing up for our free Rate Tracker, in order to keep informed of any rate changes, is one way to battle against rate reductions - but action of any sort must be at the top of savers' New Year’s resolutions.