Figures from This is Money state that savers with fixed-rate bonds set to mature this autumn will face a drop in income of up to 40%.
The drop is set to affect any savers coming off a two, three, four, or five year fixed rate deal that matures this month. It is the peak month for bonds, as around 535,000 bonds will come to an end in October.
The highest rate for bonds that are maturing is 7% on an ICICI three year deal. Today, that top rate is just 4.21%, offered by the Post Office.
This means that savers with who previously held a generous ICICI bond will have a 40% income loss if they choose to re-invest their money, as rates have fallen considerably.
For a person with £50,000 in the three year ICICI bond, the full term’s returns would have been £10,920. Trying to save again means taking the Post Office’s deal, earning just £6,315 – a full £4,605 less.
This is because savings bonds rates have crashed over the last five years on the back of the 2008 financial meltdown.
The plunge in savings rates are set to affect older people in particular, as fixed-rate bonds are a common and recommended method of saving for this generation. The elderly often rely on the interest from large sums stashed in fixed-rate accounts to pay their bills or maintain the value of their savings in the face of inflation.
Experts say those who will be forced to re-invest their money that was saved during better times are facing a “grim shock.”
Even those who are willing to tie up their money for the years ahead at such low rates will lose money due to inflation. While the top rate offered now is 4.65%, inflation for the Consumer Price Index was been figured at 5.2% in September. This figure is over double the government’s inflation target of 2%. It also means money that is tied up will not have the chance to keep up with inflation, even before tax is deducted.
Simon Rose, of Save Our Savers, says that the effect of low interest rates is that the value of savers’ money is being eroded. The working class savers, and especially the elderly, are becoming poorer over time.