Savers have had the worst year in recent history, with the big banks paying a derisory 10p for every £1,000 as inflation soars.
Experts say there’s little chance of getting a better deal soon, even though the Bank of England raised its base rate last week.
It comes as the nation’s nest eggs are being savaged by inflation, which has increased to more than 5 per cent and is now predicted to hit 6 per cent next year. It means the spending power of £1,000 sat in an account paying no interest will be diminshed by £60.
Pitiful returns: Savers have a huge £967.4bn in easy access accounts and the big banks paying a pittance hold around two-thirds of the balances
Yet savers have a huge £967.4 billion in easy access accounts and the big banks paying a pittance hold around two-thirds of the balances.
Barclays Everyday Saver, Halifax Everyday Saver, Halifax Instant Saver, HSBC Flexible Saver, Lloyds Easy Saver, Lloyds Standard Saver, NatWest Instant Saver, RBS Instant Saver and TSB Easy Saver still all pay just 0.01 per cent after cutting their rates as the pandemic struck in 2020.
Last week, the Bank of England raised its base rate by 0.1% to 0.25 percent.
But even if the big banks pass on the full base rate rise, savers will only earn 0.16 per cent — or 16p on each £1,000.
James Blower, from consultancy Savings Guru, says: ‘Savers could be disappointed. Rates are no longer in line with Bank of England base rates.
‘They move depending on what the competition pays and whether they need to attract money. There is no guarantee that your rate will rise.’
In a surprise move yesterday, National Savings & Investments announced its rates will rise from December 29. But it needs to attract money while the big banks don’t.
It plans to bring in £6 billion (plus or minus £3 billion) in its current financial year which ends in March. At the halfway stage it had managed just £0.6 billion.
In November 2011, the popular savings bank shocking savers by drastically reducing its rates, to as low as 0.01 percentage. After the increase, its Direct Saver and Direct Isa will pay only 0.35 percent.
Research from Paragon Bank shows there is some £424 billion in 42 million easy access accounts where savers earn 0.1 per cent or less.
If they moved this money to an account paying 0.65 per cent, they would earn an extra £2.33 billion in interest a year.
There is also £256 billion sitting around in current accounts earning no interest at all, up more than 10 per cent since the start of this year.
The rates have risen more than 100 percent in the past month, so it is better to go with newer building societies and banks.
But even Investec Bank’s top-paying account which offers 0.71 per cent is still a long way off beating the rising cost of living.
The worst year in cash Isas history was also recorded. This happened almost 23 years after they first appeared.
In 2021, the tax-free account has been disastrous for savers as banks cut back on already low rates.
Many Isa savers will have also earned just 10p in interest on each £1,000 saved with the big banks this year. That’s down from a previous all-time low of 38p last year with Halifax’s Variable Isa Saver.
Accounts which have paid savers just 10p on a £1,000 nest egg include NatWest Cash Isa, Santander Isa Saver, Santander Easy Isa, Nationwide Instant Isa Saver, Nationwide Instant Access Isa and TSB Cash Isa Saver.
The tax-free Isa was once the hottest thing in the savings world, but has fallen out of favor since then. The accounts allow you to save up to £20,000 each year and pay no tax on any interest earned.
However, low interest rates and tax concessions for ordinary savings accounts make them appear a bit dull.
This saw savers withdraw a huge £1.7 billion from the accounts in the first ten months of this year.
Missing out: If savers moved the £424bn currently sitting in easy access accounts to accounts paying 0.65 per cent, they would earn an extra £2.33bn in interest a year
Yet over the same period, customers flooded taxable accounts with £69.6 billion after saving extra cash during lockdown, Bank of England figures show.
Basic-rate taxpayers can earn £1,000 a year in interest in regular savings accounts without paying any tax thanks to their annual personal savings allowance.
This means you could have £140,000 in the top-paying account from Investec Bank at 0.71 per cent and still not bust your limit.
For higher rate taxpayers the allowance is £500, which means you could have £70,000 in the account before paying tax.
Anna Bowes, from Savings Champion, says: ‘Since the introduction of the personal savings allowance, cash Isas have become less important for many savers.’
Cash Isa Savers have suffered terribly this year, as big banks reduced their rates by 0.01 percent to 0.05%.
Our table shows the accounts where savers earned less than £1 on each £1,000 for the year. At least 16 accounts with big banks and Britain’s biggest building society Nationwide, now pay 0.01 per cent.
Halifax and Lloyds have reduced rates for their current accounts, Lloyds Cash Isa Saver, and Halifax Isa Saver Variable from 0.0.05 to 0.01 percent in May. Halifax’s Instant Isa Saver and Lloyds’ Instant Cash Isa suffered the same cut in September. HSBC’s rates were also cut to 0.01 percent.
Santander’s easy access rate went down from 0.1 per cent to 0.01 per cent in April for savers with more than £40,000 in its Easy Isa account.
Nationwide, RBS, and NatWest pay higher rates for larger balances. However, the best rate is still 0.1%.
Savings can be increased by changing to a high-interest account.
With Charter Savings Bank savers would pocket £5.60 on each £1,000 held, or £4 with Coventry Building Society Easy Access Isa.
Shawbrook Bank, at 0.67 percent, is the top cash Isas access rate.
Eleanor Williams, finance expert at Moneyfacts, says: ‘There is no guarantee the base rate rise will be passed on in full or indeed at all so savers could carry on earning next to nothing.’
Fixed-rate Cash Isas offered by big banks pay terrible rates. Halifax and Lloyds offer 0.2 per cent for two years, NatWest pays 0.1 per cent for one or two years and at Santander it’s 0.1 per cent for one year or 0.2 per cent if you have £25,000 in your account.
The best fixed-rate Isa for one year from Shawbrook Bank is 0.93 percent. The 1.36 percent Investec best-selling one year bond is worth 1.08 percent after the basic tax rate.
Only fixed-rate bond rates have experienced an improvement in the past twelve months. According to Moneyfacts, the average 1-year bond pays 0.8%, which is its highest rate since June 2020, when it was 0.86 percent.
The yield on longer-term fixed bonds has risen up to 1.14 %.
However, savers might be wary of locking into a fixed rate deal because the base rate may rise to 1 percent next year.
sy.morris@dailymail.co.uk