Banks Target Pre-Existing Saving Accounts for Interest Rate Cuts

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Banks have been reducing the rates of interest that they offer on new savings accounts for months now, as well as closing some accounts that offer particularly good rates. As more and more banks have cut off their best offerings from customers, it has triggered a domino effect that has seen the entire market fall away very quickly.

Now that new accounts can’t be cut anymore, the banks are turning their sights on pre-existing accounts which customers may have held for years, and are slicing down the rates of interest they offer on those too. Some of the drops in interest are truly shocking, with a drop of 1.45% by Skipton Building Society the biggest recorded so far. As there have been so many reductions in the rates offered on new accounts, it means that the victims of these interest slashes have nowhere to migrate their money to.

Ultimately, this means that savers will find it even harder to keep their money in an inflation beating account, so the value of the deposits will reduce in real terms month on month. It’s a situation that has been worrying savers groups for a long time now, but with the government currently looking at removing inflation targets and the impact that the financial crisis has had on savers and pension funds, they are sure to be looking at these reductions in interest rates very carefully.

The reasons for these reductions, apart from the banks being able to keep the money for themselves rather than pay it out for customers, are the Funding for Lending Scheme and the quantitative easing scheme that have been set up by the Bank of England over the past few years. Each of these involved providing the big banks with hundreds of billions of pounds in funds which they could then make available as loans. Previously, the banks needed to get savers to deposit money with them in order to then lend it out. They used high interest rates to lure savers in, but with the Bank of England providing money, that’s no longer necessary.