Why more of us being put off saving for a rainy day

The alarming sight of banks going bust, and consumers switching millions to ensure the protection of Government guarantees, may have put people off saving altogether.

Nationwide, launching a Savings Barometer, says nearly half of consumers (49 per cent) deemed saving “very important” in May. By August, the figure sank to 31 per cent.

“With inflation expected to continue to increase, consumers may find it even more difficult to save and could be forced to draw on savings”, the society said.

The problem is, even before last week’s dramatic 1.5 per cent rate cut from the Bank of England, only a few savers were getting enough returns to top a 5.2 per cent inflation rate. Money was already losing value in a bank or building society. Now rates for savers could follow Bank base rate down.

Nationwide’s Members ISA may beat the taxman – but it pays 4.65 per cent gross above £25,000, just 4.45 per cent gross at £100.

“Six weeks ago, more than a dozen accounts paid more than seven per cent gross”, says Andrew Hagger at finance website Moneynet.co.uk. “Now only three or four are as generous, so savers should get decent fixes before rates go lower.

“In the wake of the Bank’s decision, savers paying basic rate tax on interest will be £12 per annum worse off for each £1,000 held in a savings account – if their accounts lose the full 1.5 per cent.” Hagger says savers adopt different strategies, according to age group. Younger people should set aside a monthly sum, from £25 perhaps, to cash in on generous rates paid by regular monthly saving accounts.

On monthly sums of £20-250 for a year, Barclays Monthly Saver offers a fix at 7.49 per cent. On similar sums, Abbey offers 7.25 per cent while Principality’s Regular Saver at seven per cent accepts monthly sums up to £500. Each plan runs for a year, to build a decent lump sum.

Would-be homebuyers (aged 16-35) can open an Abbey Home Saver account with a minimum £100 to save £100-300 per month by standing order and enjoy an eight per cent rate. That only applies to the first 5,000 savers – with a mortgage interview at the end, but savers don’t have to take an Abbey loan.

Once savers have something set aside, Hagger says the smart move is to run an internet account, paying a higher rate, alongside a current account which can be topped up online whenever it gets low: AA’s Internet Saver pays 6.28 per cent, against Birmingham Midshires 5.83 per cent and Intelligent Finance 5.9 per cent, all on minimum £1 deposits.