Savers with memories of the aftermath of the financial crisis might have felt a sense of déjà vu after the Bank of Englands emergency press conference on 11 March.But while an emergency base rate cut of half a percentage point, followed by another one eight days later which took the bank rate to its lowest ever level of 0.
1 per cent, made most of the headlines, another recession-fighting measure might end up being worse news for savers.As well as the base rate cut, the Bank of England announced a funding scheme for SMEs which could provide as much as £100billion in four-year funding at interest rates at, or very close to, bank rate for banks to lend.
Bank of England governor Mark Carney (left), and his replacement Andrew Bailey, at a press conference after the announcement of a raft of recession-fighting measures, including a base rate cut to 0.25% and cheap cash for banksThis scheme will ensure base rate cuts filter through to the real economy and provide banks with a cost-effective source of funding.
Because of that, it is potentially very bad news for savers, according to industry expert James Blower.It will mean that banks can access cheap cash again, he said. We dont know how much in total will be offered in the scheme to banks and building societies yet, but it will dampen any chances of them offering savers any improvement on rates from where we are at.
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The Bank of England, under former governor Mervyn King, handed out billions in cheap cash to banks to keep them lendingThis Term Funding Scheme, launched originally in the aftermath of the Brexit vote in 2016, is a successor to a scheme called Funding for Lending.
Funding for Lending launched in summer 2012 following the financial crisis, it ran until January 2018 and was designed to encourage banks and building societies to expand their lending by providing funds at cheaper rates.By its launch, the bank rate had been slashed from 5 per cent in April 2008 to 0.
5 per cent.Before this, banks had been required to fight for savers cash with top rate deposits. At the time there was a rate war and savings rates were crazy high, said Kevin Mountford of Raisin UK, who was head of banking at MoneySupermarket at the time.Even Santander, then a relatively new entrant trying to muscle in on the UK banking scene, was offering an easy-access account paying 3.
.2 per cent in July 2012, according to Savings Champion.But once the cash injection from the Bank of England was announced, banks didnt.....