The new Bank of England governor, Mark Carney, has expressed "tremendous sympathy" for savers after announcing that interest rates could remain at rock bottom for another three years.
Yesterday, Dr Carney announced that interest rates would remain the same until the unemployment rate fell by 750,000, which is estimated to take three years to fulfil.
This is positive news for homeowners, with fixed-rate mortgages likely to remain attractive, and variable rate (or tracker) mortgages less likely to alter if the base rate remains at 0.5% for the foreseeable future.
However, it heaps further pressure upon savers, who are already struggling to beat inflation.
The strongest performing fixed-rate bond is provided by Skipton Building Society (3.50%), but savers will have to lock away their cash until the end of the decade and will still receive less than the current rate of inflation for their troubles (read more).
One of the very few accounts left to combat inflation is the cash ISA from First Direct, but savers will need a balance of £40,000 to qualify for the tax-free rate of 3%.
Skipton BS has the best fixed-rate bond, but savers must wait until 2020 for their returns, which are below the current rate of inflation.
"Tremendous Sympathy"
Speaking on BBC Radio 4’s Today programme, Dr Carney said he had "tremendous sympathy" for savers affected by low interest rates.
"The best way to get interest rates back to a normal level is a strong economy," he said.
Savers have done the right thing, he then told Sky News.
"They have put money aside and we are fully aware they are earning much lower returns on those savings then they would have expected before.
"That is one of the consequences of the terrible financial crisis that was inflicted on this country."
But the punishment could yet be worse for savers if the Bank accepts above-target inflation in the interests of growth, notes Danny Cox of IFA Hargreaves Lansdown.
"Interest rates on cash deposits aren't going to rise anytime soon and certainly not significantly for three years it seems," he said.
Keith McDonald
Which4U Editor
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