Banks slash interest rates as Brexit strikes again
NATWEST have drastically cut the interest rates offered on savings accounts and ISAs, joining other financial institutions who've slashed their rates in the past month.
The bank's Instant Saver and Premium Saver accounts will fall from rates of 0.25% and 0.1% respectively to a much smaller 0.01%. Their First Saver account will also see a significant drop, from 1% to 0.5%.
Meanwhile, their ISAs are also being subjected to numerous cuts depending on how much customers have saved in them, with those in the £1 to £24,999 bracket having their rates pruned from 0.25% to 0.01%.
This move follows similar reductions from the likes of Barclays, Santander and Lloyds, which in turn were made after the Bank of England's post-Brexit decision to cut official interest rates to a record low of 0.25%.
With these reductions, not only will British savers be punished more than ever before, but the ability of the people to put away money for their retirement has also been damaged.
The Base Rate
A spokesperson for NatWest explained Friday's decision by saying, "savings interest rates in the UK market have been going down for some time now and, on 4 August 2016, the Bank of England reduced the Base Rate."
The Base Rate determines how much the Bank of England will pay in interest to commercial banks (such as NatWest) who have reserve balances deposited with them.
As such, when it's reduced, the commercial banks will receive less in interest on their reserve deposits, putting pressure on them to lower their own commercial rates.
This is exactly what NatWest have done, with their cuts coming into effect on October 31st. With their changes, their customers with £1,000 in an Instant or Premium Saver account will receive a barely significant 10p in interest over the course of one year.
Neither are they only big high street bank to shave their rates. Within hours of the Bank of England's historic decision on August 4th, Barclays, Santander, Lloyds and HSBC all announced they were either cutting or reviewing their savings rates.
In the case of Barclays, their Instant Cash ISA and Everyday Saver accounts will offer lowered rates from December 1st, with the Everyday Saver sinking from 0.25% to 0.05%.
As for Santander, their popular 123 savings account will yield only 1.5% interest from November 1st, after having previously offered up to 3.0%.
The Spanish-owned bank announced their decision on August 15th, the same day that Lloyds announced they too would be cutting their savings rates, without specifying by how much.
£1 trillion in deficits
Still, there is some good news: all the major banks have now announced that they'll also be charging decreased mortgage rates.
This will surely come as good news to mortgage owners, even if some lenders such as Lloyds, NatWest and the Royal Bank of Scotland were initially reluctant to do the decent thing and cut the interest on their loans.
Nonetheless, this doesn't change how bad the news is for savers, especially when some banks, including NatWest, HSBC and the Royal Bank of Scotland, have even warned their business customers that they're considering applying negative interest rates to their accounts.
It becomes worse still when reports from such groups as the Association of Consulting Actuaries say millions of British workers aren't saving enough for their retirements.
In fact, the plunge in interest rates has only worsened the funding crisis affecting many private pensions, further jeopardising the future of many people who want merely to provide themselves with a nest egg.
Calling on the Government to open an inquiry into this issue, former Pensions Minister Baroness Altmann stated that the drop in the Base Rate was "damaging for pension schemes and moved deficits closer toward the £1 trillion mark."
This means that private pensions are missing £1 trillion that, at some point in the future, they will be obliged to pay out to holders.
If nothing else, this crisis only reaffirms the negative impact of the June 23rd vote to leave the EU on the British economy and British people.
That is, the vote to leave caused the biggest drop in consumer confidence in 26 years. As a result, the Bank of England moved to stimulate the economy and prevent a possible recession, lowering interest rates so that people would be motivated to spend.
However, in doing this, they've not only worsened the nation's prospects for saving, but have made a potential pensions crisis even more threatening.
The only hope for savers is that the British economy picks itself up after the uncertainty and shock of Brexit. There are some tentative signs that this just might be happening, what with the UK enjoying its best retail sales for six months in August. Still, in light of how other estimates suggest that GDP shrank by 0.2% in July, it could be some time before they see the economy taking a clear, positive direction.