Savers looking for fixed rates are losing out in drive to keep mortgages down, it is claimed

News - Savings

Written by Ray Clancy

Tuesday, 06 July 2010 09:27

Savers taking out a fixed rate bond today will receive up to 23.3% less interest than they would have nine months ago, according to new research.

Figures from Moneyfacts show that 29% of savers are looking to fix their interest rate, with the average amount invested in a fixed rate bond standing at £36,872. But those investing the average amount nine months ago would have received £1,209 in interest, compared to just £978 today.

They are the victims of the drive to keep mortgage lending competitive, the company says. ‘Providers are focused on mortgage lending and as they strive to attract new business by reducing mortgage rates, they are in turn cutting savings rates to balance the books. Uncertainty over when bank base rate will rise means most savers are only taking a short term view, but they are being punished by the biggest reductions in rates,’ said spokeswoman Michelle Slade.

‘At 2.62%, the average rate on a one year bond stands at an all time low. Prudent savers who rely on the interest from their savings to supplement their income continue to be hit the hardest. Inflation also continues to take its toll on savers and is effectively depreciating the value of savers’ capital,’ she added.

She also points out that savers hoping for incentives from last month’s Budget were left bitterly disappointed and many continue to feel their needs have been forgotten during the credit crisis.

‘With a change in bank base rate still predicted to be a little way off, the situation for savers is likely to get worse before it gets better. To limit the effects of falling rates, savers need to review their portfolio regularly to ensure they are receiving competitive rates,’ she explained.

Meanwhile a separate report shows that three quarters of over 55s could miss out on additional retirement income as they don’t realise that certain medical conditions could mean an enhanced annuity.

More than three quarters, 77%, of British adults aged 55 and over are unaware they could take advantage of the higher rates that come with enhanced annuities, according to research from MGM Advantage. And it also shows that 59% of people aged 55 and over claim they have or have had a medical condition that could qualify them for an enhanced annuity.

Some 40% and 30% of people surveyed have or have had high blood pressure or high cholesterol respectively, which requires treatment or management by a medical professional, and would be considered for a higher level of income by an annuity provider.

The retirement income specialist warns that people who don’t mention any underlying health issues could risk losing out financially as enhanced annuities pay out on average 24.09% more for men and 22.69% more for women. For the first five years of retirement for example, the difference between the amount paid out by an average standard and enhanced annuity is £3,823.50 for a man buying an annuity with £50,000, and £3,407.65 for a woman.

‘Whilst it’s encouraging that so many people aged 55 and over are having regular health checks, it's shocking that so few are aware that certain medical conditions would qualify them for an enhanced annuity and therefore increased retirement income. In some cases, declaring a medical impairment could result in an individual being thousands of pounds better off and make a real difference to their quality of life,’ said Aston Goodey, sales and marketing director at MGM Advantage

‘Having a health check before purchasing an annuity is vital and if someone discovers they have a medical condition, it’s really in their best interest to inform their prospective annuity provider,’ he added.