Interest Rates on Savings Accounts Still Falling

Written by Karen Bryan

I thought that I would have some respite from reductions in the rates of interest paid on my current and savings account.

In the wake of the 0.25% fall in the Bank of England Base Rate in August 2016, the rates of interest paid on virtually all my current and savings account dropped, in some cases by a lot more than 0.25%.

But I was wrong, the cull continues, despite no change in the Bank of England Base Rate.

The rate of interest paid on my Newcastle Building Society Big Home Saver is being cut by a further 0.20% from 1.25% to 1.05% from 7 February 2017. The interest paid on this Newcastle account is made up on a variable underlying rate and bonus. The bonus is paid each month as long as you have made a deposit into the account and not made any withdrawals.

I may close the Newcastle Big Home Saver account, as I receive the same 1.05%  (variable) rate of interest on my instant access Nationwide Flexclusive Cash ISA Account.

Earning an interest rate of 1.05% is very bad news with inflation, as measured by the Retail Price Index (RPI), standing at 2.5%. This means that any savings earning an interest rate of 1.05% are losing 1.45% in value a year.

Contrast this to August 2015. Then I could earn 3% interest on my Santander 123 Current Account. With RPI at 1%, I was making a real return of 2% (assuming that there was no income tax due on the interest).