Page last updated at 11:18 GMT, Tuesday, 10 March 2009

Saving rates drop to record low

Bank of England
The Bank of England's figures show the effect of its rate cuts

The average interest rate for savers who want instant access to their money is now barely above zero, figures show.

The Bank of England said that the average rate for UK instant access accounts - including current accounts - was 0.17% at the end of February.

This figure does not take into account any reductions that might have come following the half a percentage point cut in the Bank rate in March.

Lower interest rates have benefitted many people with variable mortgages.

The experience of people with tracker mortgages, whose repayments have dropped markedly, has also been in sharp contrast to savers - particularly pensioners who live off interest from life savings.

Low rates

Customers with branch-based notice accounts are also seeing little return for their savings. The average rate at the end of February was 0.18%, half the rate of a month earlier.

Savers are being punished for the mistakes of others

Kevin Mountford,

The average rate on instant access accounts - including current accounts - was down from 2.69% at the same time last year, and 0.28% at the end of January.

"Savers are being punished for the mistakes of others. And that so many are looking to find better rates at a time when you would imagine security and service would be paramount, shows just how badly savers are being squeezed," said Kevin Mountford, head of banking at

The average interest rate for cash ISAs at the end of February was 0.96%, down from 1.38% at the end of January and 5.06% from a year earlier.

However, the average interest on fixed rate bonds rose slightly from 2.49% at the end of January to 2.56% at the end of February, although this was down from 5.21% a year ago.

Borrowers' bounty

The Bank's figures show that falling interest rates have led to lower repayments for many mortgage customers.

Watching the pennies has become a bigger issue in the downturn

Those on a standard variable rate (SVR) deal - the only deal with interest levels purely at the discretion of lenders - were paying an average of 4.41% interest at the end of February, compared with 7.5% a year earlier.

The figures show that neither borrowers nor savers have witnessed the recent cuts in the Bank rate passed on in full.

The Bank's Monetary Policy Committee has cut the Bank rate for six months in succession - down from 5% in October 2008 to 0.5% now.

Experts, including the governor of the Bank, have said that rates cannot really fall any further, although some have suggested that longer-term fixed-rate mortgage deals could become cheaper over time.

It is difficult to tell exactly how many people in the UK are savers and how many people are borrowers.

It is safe to say that there are more savers, but the key point is that, overall, UK householders are net borrowers.

Total household savings are 987bn with banks and building societies, plus 90bn in National Savings. Borrowings include 1,225bn of mortgage debt and 233bn of other consumer debts.

The difference - known as the funding gap - has been filled by banks borrowing in wholesale markets, with much of the money coming from abroad.

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