Savers were left facing interest of barely more than 1 per cent on their day-to-day savings today as banks continued to pass on the Bank of England’s emergency interest rate cut.
The best-buy easy access account now pays a mere 1.05 per cent after RCI Bank – the banking arm of car firm Renault – slashed the rate from a market-leading 1.2 per cent.
With consumer inflation running at 1.5 per cent in March that means savers who want access to their deposits are suffering rapid declines in the value of their savings.
Savings experts have frequently predicted best buy rates to bottom out at 1 per cent – a drop of a third since September 2019 – but after a savings bloodbath this week, the fear is that they won’t stop there as the coronavirus crisis plays out.
Ford Money and RCI Bank – the banking arm of Renault – both announced savings cuts this week. The banks are used to fund car finance lending, which has fallen during the lockdown
One industry expert told This is Money yesterday there was a possibility best buy rates could fall below 1 per cent.
The RCI Bank move follows Marcus Bank’s similar rate cut overnight on Tuesday, and the AA and Ford Money also pulled accounts this week. Paragon Bank also cut its easy-access rate in half to 0.5 per cent on Thursday.
The AA pulled its 1 per cent easy saver from sale and replaced it with one paying 0.25 percentage points less, while Ford Money yesterday announced it had pulled all its savings rates except an easy-access Isa – including a 1.07 per cent easy-access account which had been launched just a fortnight ago.
It is the second bank in less than a week to pull all but one of its savings deals from sale, after Aldermore Bank did the same thing.
While the AA’s savings accounts are provided by Bank of Ireland, both Ford Money and RCI Bank are the banking arms of major car companies, with savers’ deposits used to fund car finance lending.
While RCI has kept its 95-day notice account paying 1.4 per cent and fixed-rate bonds open to new applicants, Ford Money’s decision to close all but one of its accounts to new applicants is likely connected to the fact new car sales have recently fallen off a cliff.
Ford shifted just 306 new cars in April according to the Society of Motor Manufacturers and Traders, compared to 18,074 in the same month last year, with new car registrations down 97 per cent last month in all.
So desperate does Ford appear to be to get new cars out the door that it has offered a car finance deal for cars bought in April or May that could allow buyers to take a six-month payment holiday.
Ford Money revealed its pre-tax profit in the first three months of 2020 had dropped to £7million, down from £86million in 2019. It said the coronavirus outbreak in Europe, where the bank funds operations in 11 countries, ‘led to a significant reduction in vehicle sales and production shutdown.’
The bank held £2.7billion in savers’ deposits in March, which is used to fund ‘a variety of retail, leasing and wholesale automotive financial products and services’ which ‘play an important role in supporting vehicle sales.’
However, figures from the Finance and Leasing Association revealed car finance lending, normally used to purchase 90 per cent new cars in Britain, dried up in the face of the coronavirus lockdown.
Point of sale finance fell 27 per cent in March compared to the same month last year and 13 per cent in the first three months of the year, while the FLA expected fewer loans to be taken out for the rest of 2020.
Geraldine Kilkelly, head of research and chief economist at the FLA, said: ‘The motor finance market has been hit hard by the lockdown in March as the main route to customers through dealerships closed. Our latest research suggests that the consumer car finance market is likely to see the value of new business fall by 29 per cent in 2020 as a whole.’
Instead, car finance providers are more likely to be in need of funds to support existing customers in need of three-month payment holidays, which were brought in by the Financial Conduct Authority on 24 April.
Ford Money’s chief deposits officer Suzanne Lewsley said: ‘We are constantly reviewing and adjusting our product proposition and rates, which can involve introducing or removing products from sale, or, increasing or lowering rates.
‘We are currently living in unprecedented times with current market conditions meaning alterations to our product offering may happen within a shorter space of time than would be the norm.’
Rates are falling across all types of savings accounts as a result of a historically low Bank of England base rate of 0.1 per cent, which makes it costlier for banks to offer savers higher rates, a cheap funding scheme from the Bank, and less demand from new borrowers, meaning banks need less cash from savers.