SIMON BAIN
 

The jungle drums are rumbling over interest rates. Last week’s decision by the wise men and women at the Bank of England – to leave rates at 0.5 per cent for the seventy-sixth month in a row – was accompanied by smoke signals that rates will at last rise from their six-year slumber, perhaps in the new year.

But will savers notice?

The low base rate has been devastating for anyone trying to earn a decent return on savings. Rewind to this weekend in August 2008, and the Monetary Policy Committee was bravely leaving interest rates on hold (rather than putting them up) for the fifth month in a row – at 5 per cent.

For lucky savers, Birmingham Midshires was offering the best fixed rate one-year bond, at a dizzy return of 7.17 per cent, and the best e-Saver account paying 6.52 per cent for easy access.

Bradford & Bingley was just behind, offering “a great rate” of 6.51per cent on its internet saver,according to MoneySupermarket at the time.

Within two months, Birmingham Midshires (part of Halifax Bank of Scotland) and Bradford & Bingley were both effectively bust.

Seven months later the base rate had crashed to today’s level.

But according to independent website Savings Champion, more damage to savers has actually been done by the government’s Funding for Lending Scheme.

In August 2012, after three years of the base rate freeze, the best buy account for savers was still paying 3.15per cent.

Today, with the base rate unchanged for another three years, the best buy rate for savers opening a new account has more than halved to a miserly 1.48 per cent.

Anna Bowes at Savings Champion says: “Existing account holders have also suffered, with rates on over 3,500 accounts cut.

“It’s no secret, the Funding for Lending Scheme, which came into operation in August 2012, has been devastating for savers. The scheme was launched with the intention of stimulating the housing market but its knock-on effects meant that providers no longer looked to savers to fund their loan books and in fact retracted from the savings market. Best buy rates halved and existing savings rates tumbled, almost overnight.”

Before Funding for Lending, a cut in interest rates was almost unheard of unless in response to a change in base rate. After three years, rate slicing shows no sign of abating, with 211 accounts cut in July - the third highest monthly cull since the slide began.

But there is a glimmer of hope, Bowes says. “Whilst the news for existing account holders remains bleak, there continues to be some positive movements amongst accounts available to open, with some of the best fixed rate bond and notice account rates we have seen in nearly two years. Easy access accounts have also improved.”

Secure Trust Bank has launched a 120-day notice account paying 1.98per cent AER (annual equivalent rate). Accounts can be opened online with a minimum of £1,000 and there are a maximum four interest and three capital withdrawals each year, in addition to the notice. The bank also has a six-month notice account paying 2.07per cent.

The best buy bonds are also currently offered by Secure Trust Bank, which lifted some of the rates last week. The two-year pays 2.38per cent, the five year 3.08per cent and the seven year 3.11per cent. All three bonds can be opened online with a minimum of £1,000, there is no early access, interest is paid annually and on maturity to a nominated account and cannot be added to the bond itself.

The newest kid on the savings block, RCI Bank owned by French carmaker Renault, continues to shake up the market. Its new fixed term range includes the market leading two-year account, paying 2.35per cent. Its easy access Freedom account is also at the top of the table, paying 1.65per cent AER to new and existing customers.

The bank says it plans to launch more products over the next 12 months.

Newly-launched fixed rate Isas from the Skipton (two and three years paying 2per cent and 2.1 per cent respectively) and Shawbrook Bank(three years at 2.1 per cent) are in the top five best buys, while both the Skipton and the Post Office improved their best easy access rates to 1.4per cent last week.

Tesco Bank has announced it will be the first bank to alert customers to how much interest they might have earned if they had transferred current account balance into a savings account. It says 80per cent of UK accounts pay no credit interest. However the bank already pays 3per cent interest on balances up to £3000, and Tesco has admitted the trumpeted new service is only relevant to a minority of customers with higher balances.

For bigger balances, Santander’s 123 account takes the biscuit, paying up to 3per cent on balances up to £20,000. There is a £2 monthly fee, but cash back benefits on bills if you pay in £500 a month and set up two payments.

On the maximum £20,000, and after paying the fee, it’s the equivalent of earning an annual rate of 2.58per cent.

CASE STUDY

Lisa Lugget is getting a rate of 4 per cent on two newly-opened accounts for her daughters Mia 11, and Ava, six. That is the top rate on the Halifax Junior Isa, as it includes a 1per cent bonus if parents also hold one of Halifax’s cash Isas.

The Edinburgh-based catering manager said: “I hadn’t previously had an account for myself, but I decided to open one so I could start saving too.”

The Halifax’s fixed rate Isas pay 1.4per cent for one year, 2 per cent for three years and 2.15 per cent for five years, or 0.8per cent for an instant access version.

The Junior Isas will have to be held, with no access, until the girls reach 16, and Lisa says the cost of education, or a house deposit, means one thing: “It’s important to put money away.”