Savings income hit by rate cuts

Many pensioners rely on interest from their savings accounts, and the recent cuts in interest rates will reduce their income.

Borrowers have struggled, but at least some politicians have been fighting to get them a better deal; no one is fighting for savers.

It is estimated that some savers could see their savings income reduced by a third, and they will struggle to pay bills of rising energy, food and council tax. Indeed, in the last year, some accounts have reduced their interest by 50%.

With the cut in November the base rate stood at 3%, whereas a year ago it was at 5.75%. Twelve months ago pensioners could get a rate of 5.13% (before tax) in a High Street account, compares with a current rate of 2.47% in the same account. For each £10,000 in their account, that is a drop of £22 per month or £266 per year in interest payments.

In the same period, inflation for over 75s has gone up at a faster rate than the published figure. According to the Alliance Trust, inflation for this age group was at 7.8% in September – much higher than the 5.2% RPI.

To preserve their rates, pensioners may have to move to online or telephone accounts, or lock money into fixed-rate accounts.

A sensible option is the over 50s savings account from Alliance & Leicester.

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