UK Savers Under Siege: Inflation Devours Savings as Bank Rates Plummet

Banks slash rates while inflation feasts on your cash—classic financial 'protection.'

The Squeeze Is On

UK savers are getting hammered as inflation races ahead of dwindling bank returns. Your money’s losing value faster than a meme coin in a bear market.

Rate Cuts Meet Price Surges

High street banks keep trimming interest rates—because nothing says 'customer first' like rewarding loyalty with crumbs. Meanwhile, inflation laughs all the way to the… well, your wallet.

The Cynic’s Take

Ah, the old ‘negative real returns’ trick. Banks win, you lose. At least crypto’s honest about its volatility.

Inflation threatens to erode the real value of consumer savings

These cuts mean that some customers may see the real value of their savings decline. Inflation unexpectedly ROSE to an 18-month high of 3.6% in June, with the BoE now forecasting it could peak at 4% in September.

“If inflation reaches 4% as predicted, many savers won’t actually be beating that on a variable rate,” said Rachel Springall of Moneyfacts. “It shows that real-term savings are at risk of being eroded.”

Moneyfacts data shows that the last time average savings rates fell below CPI inflation was in October 2023. The data covers interest paid on easy access accounts, notice accounts, cash ISAs, lifetime ISAs, junior ISAs, and children’s savings accounts. Banks acted quickly to reduce rates, in contrast to the slower pace seen when raising them. In 2023, then-Chancellor Jeremy Hunt criticized banks for “taking too long” to pass on interest rate increases to savers.

Despite the 0.25 percentage point fall in base rates, some banks cut rates for account holders by more than double. Between August 7 and August 12, ATOM Bank lowered the Instant Saver Reward account rate from 4.51% to 3.93%, a 0.58 percentage point drop. 

OakNorth Bank reduced the rate on its 20-day notice account by 0.34 percentage points to 3.78%. Skipton cut its Cash ISA Saver and Children’s Trust Saver by 0.5% each. The UK’s largest banks were more conservative. Santander cut its Junior ISA by 0.10 percentage points to 2.7%, while NatWest reduced its cash ISA by 0.25% and its Help to Buy ISA by 0.20%.

Savers urged to monitor accounts as more rate cuts loom

While borrowers welcome last week’s rate cut, its impact will be slow to reach most. Only those on variable-rate mortgages tracking the base rate will see immediate benefits.

The Bank of England now expects inflation to peak at 4% in September, according to its latest Monetary Policy Report. This is double the Bank’s target rate and slightly higher than the 3.8% projection it made in May.

Despite inflation running above the desired level—which WOULD typically rule out a rate cut—the economy has shown weak growth, and concerns are mounting over the labour market. Governor Andrew Bailey described the decision to lower interest rates as a “finely balanced” one. Springall advised savers to stay alert but warned that switching accounts now may not be effective.

“Customers could move their account now, only to find that the new provider also cuts rates soon after. For those on variable-rate deals, the best approach is to monitor rates closely,” she said.

The average two-year mortgage rate dropped to 4.99% and analysts called that a “benchmark” moment for homeowners, noting that lenders are “bidding more aggressively.”

The BoE cut rates five times since last August, but there was little unanimity at the latest session of its Monetary Policy Committee, and it is unclear when further reductions might occur. A Moneyfacts spokesperson said that while mortgage rates are moving in response to the Bank’s cuts, they will be far from drastic.

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