[Anonymous]

The Bank of England’s scheme to boost lending is in fact lowering interest rates. Long-suffering savers are facing another painful chop in interest rates with banks and building societies this week withdrawing their best deals – an unintended consequence of the government’s new Funding for Lending scheme designed to help stimulate the economy.

Fixed-rate bonds that were offering more than 4% interest are being cut to 3.5%, while cash Isas paying 3% are falling to the 2% region. Market watchers blame the £80bn Funding for Lending scheme, introduced in August by the Treasury and operated by the Bank of England for the falls. As banks have been able to access cheap funds from the scheme, they are less keen to offer high rates to attract cash from savers.

Providers deny that the Funding for Lending scheme is to blame, but it can be no coincidence that rates started to fall at around the time the scheme was introduced in August. There appears to be an alternative source of cheaper funds available, which means that the appetite for raising money from savers seems to have waned. This has been reflected in the interest rates being offered…fixed-rate bonds have fallen from a high of 3.65% earlier in the year, to the current level of 3.10% for one year. Four-year deals have fallen from 4.20% down to 3.80%.

How Funding for Lending is hurting savers

When the Bank of England was given the job of setting interest rates it was with the sole intention of controlling inflation but for some time now the Bank of England has set aside concerns about inflation and has been pursuing a monetary policy based on achieving growth which is not what was originally intended when the Bank of England was given the responsibility for setting interest rates. In fact the Bank of England couldn’t give a stuff about inflation – it is more concerned about keeping aloft a barmy economic and housing Ponzi scheme that does not reflect economic reality by continuing to create money out of thin air and giving this free money to the banks and building societies which is inflationary and which will have to be reversed some time in the future. This money printing is just helping the greedy banks who have been only too eager to get their hands on this cheap money from the Bank of England and it is this source of cheap money that is the thing that has been driving down the interest rates for the poor long-suffering savers in recent weeks.

Once all the £80 billions of the Funding for Lending scheme has been used up interest rates on savings accounts will almost certainly rise but it will take time, probably six months before interest rates start to creep back up again but in 2015 there will be a run on the Pound and banks will no longer have access to free money from the Bank of England and the banks will have to look to attract money from savers which will mean a rise in interest rates.

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