Savers and pensioners to suffer from BoE £150 billion cash injection

The Bank has increased its bond buying programme, but it means savers and those buying an annuity will lose out.

Cash savers and pensioners who want an annuity are the big losers from today's move by the Bank of England to protect the wider economy from the fallout of Covid-19.

The Bank’s Monetary Policy Committee yesterday voted unanimously to maintain the Bank Rate at its historic low of 0.1%.

The Bank will also increase its government bond buying programme by an extra £150 billion, to take its total stock of government bond purchases to £875 billion.

Ultra-low bank rate, below current inflation at 0.7%, keep a tight lid on the interest rates savers can get in cash accounts. 

This is because the rate is factored in to the interest high street banks and savings providers pay their customers.

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Rachel Springall, personal finance expert at Moneyfacts, said cash savers will not find attractive rates from their high-street bank as these institutions do not need to entice savers’ deposits to fund their lending. 

“Challenger banks on the other hand may be more inclined to offer higher rates, and they are perfectly safe as they are covered by the Financial Services Compensation Scheme,” she said.

Anthony Morrow, co-founder of Openmoney, said at least the Bank had steered clear of negative interest rates, which had been under discussion. If passed on, this would mean high street banks might charge savers for holding cash with them, rather than paying them interest.

The Bank’s bond buying programme, known as quantitative easing or QE, is a blow for pensioners seeking to buy an annuity to provide a fixed income in retirement.

Springall said:

“The latest QE measure means buying billions worth in Government bonds. Over the years, annuity rates have fallen when this has occurred, as they are typically set with gilt yields.”

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Retirees may choose pension freedoms to draw income directly rather than taking out an annuity, she added.

QE tends to boost stock markets – the FTSE 100 rose half a percent on the Bank of England announcement – and so artificially benefit pensions invested in stocks and shares. The rise is more psychological, however, and could quickly recede if the Bank were to be seen to withdraw support.

“Markets are fragile for investors, they will have to keep a close eye on where they have their money invested but should seek advice if they are concerned as a sudden decision to move their investment may not be the right one,” said Springall.

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