Sunday, 11 January 2009

Never a saver be

About 40 per cent of savings accounts that cater for those with deposits of £5,000 already pay less than 1 per cent. If banks and building societies pass on Thursday's half point rate cut in full, the percentage of those accounts paying less than 1 per cent rises to 66 per cent. Amount a tenth of all savings accounts already pay only 0.1 per cent.

Among those hit particularly hard are pensioners who rely on savings accounts to boost their state pension, most typically the less well off retired. There are other options, of course, such as corporate bond funds (or even individual purchases) and income funds, but these appeal to the more sophisticated investor.

The argument is that interest rates have to be cut to stimulate the economy, but it hasn't done much so far, although defenders would argue that it takes a while for such cuts to come through. Business is vociferous in its defence of rate cuts as it is a clear beneficiary, if a business can find a bank to lend it money (it's simply not having for small businesses according to an accountant I was talking to on Friday who specialises in the sector).

Given that there are three savers for every borrower, Dave Cameron has seen an opportunity and promised to move towards a zero rate of tax on borrowings for basic rate taxpayers. Another option, and one that Labour may take up, would be to increase the derisory £3,600 limit on a cash ISA.

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