Funding For Lending Scheme – Good or Bad?

People saving up for retirement, a deposit for a new home or for any other purpose are apparently being short-changed. Rates for savers in the past couple of months have fallen by around a tenth, with the government’s economic policy deemed responsible for that trend. The government’s Funding for Lending scheme is being blamed by some lenders as it reduces the need for banks and building societies to offer competitive lending rates.

It’s expected that savings rates could fall as a result of the decision to peg interest rates to a fund platform, with the average return from a one-year fixed rate account falling from 2.77% to 2.57%. Several savings account providers have lowered their rates, which has come as a shock to many account holders. The Funding for Lending scheme has made it easier for banks to get access to cheap money, which reduces the need for them to make savings accounts good value.

The drop in value of many savings accounts is something Will Becker from comparison site Totally Money was perturbed by:

"Unfortunately, this already long period of falling output followed by stagnant or low growth means savers are really suffering.  However, we certainly wouldn’t want the Bank of England to stray from its low interest rate path.  Inflation (which would hit savers even harder) seems to have been checked and with mortgage affordability finely balanced, a significant rise in interest rates would almost certainly affect the entire economy, savers included, very negatively. 

"We suggest savers who are impatient to see better returns might be interested to look at the potential rates of return available from alternatives to deposit accounts including the very interesting peer to peer sector where lenders such as Zopa and Ratesetter [link to savings tables] offer the ability to lend direct to borrowers."