UK customers threat inflation hit to financial savings for first time in two years | USAEMALL.com

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Consumers risk seeing their savings eaten away by inflation for the first time in nearly two years after UK banks slashed interest rates paid to customers in response to Bank of England base rate cuts last week.

More than 20 savings providers, including NatWest, Chase and Santander have cut rates paid to consumers over the past week, according to the financial data website Moneyfacts. 

The Bank of England announced a cut in the base interest rate by 0.25 percentage points to 4 per cent on August 7, which lenders have already started passing on to customers.

The cuts mean some customers will see the real value of savings eroded. Inflation unexpectedly rose to an 18-month high of 3.6 per cent in June with the BoE now forecasting a peak of 4 per cent in September.

“If inflation does rise to 4 per cent as predicted, there’s going to be many savers who aren’t actually beating that on a variable rate,” said Rachel Springall of Moneyfacts. “So it just shows you again that those real-term figures are going to be eroded.”

Moneyfacts data shows that the last time the average savings rate was below CPI inflation was October 2023.

The figures cover interest paid on easy access, notice accounts, cash Isas, lifetime Isas, junior Isas and children’s savings.

The speedy response to cut rates contrasts with the slower response in the past when raising them. In 2023, then Conservative chancellor Jeremy Hunt said banks were “taking too long” to pass on increases to savers.

Despite the 0.25 percentage point fall in base rates, some providers have cut the interest paid to account holders by more than double that.

Between August 7 to August 12, the neobank Atom Bank cut the interest rate on its instant saver reward account from 4.51 per cent to 3.93 per cent, a 0.58 percentage point cut; OakNorth bank cut the rate on its 20-day notice account by 0.34 percentage points to 3.78 per cent; Skipton cut its Cash Isa Saver and Children’s Trust Saver by 0.5 per cent each.

Britain’s biggest banks, such as NatWest and Santander, were more conservative. Santander cut its Junior Isa by 0.10 percentage points to 2.7 per cent while NatWest cut the rate for its cash Isa by 0.25 per cent and its Help to Buy Isa by 0.20 per cent.

While last week’s decision by the BoE was welcomed by borrowers, few will feel its impact for some years. Only those on variable deals, whose mortgage costs are correlated to the base rate, will benefit immediately.

Springall urged savers to be vigilant, but said switching accounts at this time may prove futile, as most banks will probably start cutting rates in the coming weeks.

“Customers could shift their account now and then in a couple of weeks find that the new provider they went to is actually going to be cutting their existing customer rates. So it feels like that’s a bit of a waste of effort. I think the best thing to do at this point if you have got a variable rate deal is to keep a vigilant check on the rate.”