Savers hit by rate cap

The Bank of England's decision to hold interest rates at 0.5 per cent on Thursday was bad news, according to David Black, banking specialist at Defaqto. "It is no surprise that the Bank base rate is unchanged for the 11th month in a row but it is seriously bad news for Britain's hard-pressed savers and particularly for those on modest incomes who rely on interest from savings to boost their means," says Black.

The average interest rate for a £1,000 balance in an instant- or easy-access account is currently just 0.88 per cent, which is well below the inflation rate. Some accounts pay as little as 0.01 per cent while the Coventry's Building Society's easy-access 1st Class Postal pays 3.15 per cent gross AER on balances of £1,000 or more.

"There are things that savers can do to boost their savings rates," says Black. "It has been apparent for some time that inertia and loyalty does not pay in the current savings market. A proactive approach by moving variable-rate savings accounts to take advantage of things like introductory bonuses from those banks and building societies appearing in the best-buy tables would boost the returns for many."