Jess Salway: Give savers a break and set NS&I free
ANOTHER week, yet another round of reductions in savings account rates. Long-suffering savers are now accustomed to the absence of decent cash returns, but they’re also finding out that some cuts are deeper than others.
The latest move was the decision to slash the interest rates on three savings products offered by government-backed NS&I. The return on the NS&I Direct Isa, for example, is dropping from 2.25 to 1.75 per cent.
NS&I has acted due to a remit that allows it only to offer rates which are competitive but not market-leading.
There’s also a ceiling limiting the amount of money it can bring in – the net financing target – which is set by the Treasury. There was an opportunity in the Budget to support savers by increasing the amount of savings deposits that NS&I could attract. That chance went begging, as one might expect of a government with no interest – excuse the pun – in helping savers.
Yet there’s a case for relaxing the rules constraining NS&I. Banks and building societies would be up in arms if NS&I was given the freedom to compete at the top of the savings market, yet their bleating would be hollow.
The savings rates that NS&I is cutting are only near the top of the best-buy tables because banks and building societies keep slashing their own interest rates. The changes announced last week take effect from 12 September, by which point the newly reduced rates may well be sufficiently attractive in relation to other offers to require further cuts.
The providers that would complain so loudly if NS&I were able to hike its rates are the very same brands profiteering from the Funding for Lending Scheme (FLS). The idea of the FLS is to boost borrowing to homeowners and businesses by giving banks access to cheaper finance.
But while lenders have taken more than £16.5 billion from the scheme, lending levels have actually fallen. The FLS is instead being used to inflate margins, with the banks no longer dependent on savers to provide deposits and duly slashing their savings rates. The state-backed banks are among the worst culprits, Royal Bank of Scotland meriting a special mention.
So why the slavish adherence to the small print governing NS&I when the market has been distorted by government and central bank programmes such as the FLS and quantitative easing?
It’s a race to the bottom for which savers are paying dearly. If ever there was a time to ease the restrictions on NS&I, it’s now. But while its government-backed status ensures that NS&I products remain hugely popular, there’s now a fear that the biggest threat to NS&I is the government itself.
Does it still have the appetite to support an institution through which it guarantees billions in savings? It’s increasingly doubtful.
Staying put can cost you dearly
THE final clutch of fixed energy tariffs to which thousands of households signed up last year are about to expire, including seven ScottishPower deals. Households on those tariffs escaped the price hikes implemented late last year and early in 2013, but their energy prices will shoot up if they don’t take action when their deal expires.
That’s because they’ll be shifted onto their supplier’s standard tariff, likely to be far more expensive.
The average increase facing those with fixed terms coming to an end is £118 a year, with many set for a hike of more than £200. Customers moving off four different ScottishPower fixes will be paying £170 more a year if they stay on its standard tariffs, according to analysis by TheEnergyShop.com.
Shopping around for a better deal is rarely a waste of time, especially in the energy market. But if you’re on a fixed term deal, make sure you know exactly when it expires or the savings you’ve made will quickly disappear.