Savers should beware as rates fall

Interest rates are coming down on many savings accounts following the Bank of England cut on Thursday.  But although the base rate fell by just a quarter of a percentage point, the rates on some savings accounts have come down by far more.  Newcomer Kaupthing Edge, however, has thrown down the gauntlet by declaring that it will not cut the 6.5% rate on its table-topping easy-access account. ICICI, which pays 6.41% to HiSave customers, Bradford & Bingley (6.40%) and Icesave (6.40%) have yet to reveal whether they have the stomach for a fight.  Watch this space!

Bank cuts interest rates to 5.25%

The Bank of England cut interest rates on Thursday by a quarter point to 5.25 percent despite calls for a half-point cut.  The widely expected quarter point cut by the Central Bank was modest compared to the recent cuts made by the US Federal Reserve (1.25% points last month alone).  The Bank’s move will be welcomed by many mortgage borrowers, but homeowners who do not have a mortgage deal directly linked to the base rate may be disappointed as some lenders have been increasing their own rates in anticipation of a cut.  The decision by the Bank of England’s Monetary Policy Committee comes as more evidence emerges of a slowdown in economic growth both in the UK and overseas.

Newcomer Kaupthing offers 6.5% to online savers

Icelandic-owned Kaupthing Edge, an online savings provider, has become the latest foreign bank to launch an account aimed at British savers.  The instant-access savings account which pays 6.5% gross rivals that of ICICI Bank’s HiSave account at 6.41% (which has stayed at the top for a long while).  Savers must first open the instant-access account with a minimum of £1,000 before they can take advantage of Kaupthing’s fixed rates while ICICI HiSave only requires £1.  It also offers a six-month fixed-rate bond at 6.8% gross and a 12-month fixed-rate bond at 6.86% gross.  Kaupthing is regulated by the Financial Services Authority and as such savers’ cash up to £35,000 is protected under the Financial Services Compensation Scheme if the bank were to run into difficulties.  Kaupthing also guarantees that the rate on its instant-access account, which is variable, will not be less than 0.3 of a percentage point above the base rate until February 2012.

Many lenders failed to pass on rate cut

According to figures, eighteen of the 103 mortgage lenders failed to pass on any of last month’s interest rate cut, while sixteen reduced their rates by less than the full 0.25%.  However, many banks and building societies have taken the opportunity of the interest rate cut to reduce their savings by more than the 0.25% reduction in base rates. A total of 117 providers have so far cut their savings rates, with just 15 leaving them unchanged.  Alliance & Leicester has made the biggest reductions to its savings by slashing rates by up to 0.5%, while HSBC has reduced some accounts by up to 0.49%.  Britain’s biggest mortgage lender Halifax and Bradford & Bingley have both cut rates paid to savers by up to 0.4%, while a number of banks and building societies, including Britannia, Royal Bank of Scotland and NatWest, Yorkshire Bank and Sainsbury’s have decreased them by 0.3%.  Will another rate cut mean banks carry on cheating customers even more?

Northern Rock entices savers and puts off borrowers

For the past two weeks, the bank has been offering loyalty bonuses to savers and increased rates to a range of savings accounts.  But on the other hand, it has withdrawn mortgages, loans, credit card, and increased borrowing rates to rediculous highs with huge arrangement fees.  Obvious signs that its trying to recoupe some of its loses after its savers decided to match away with their money in toe back in October.  It has since then borrowed more money from the Bank of England to the tune of £29bn.  The move has pushed some of its savings products up the best buy tables and deterred mortgage brokers with fixed rates starting from 6.79% on 90% LTV with arrangement fee of £1,995.  As a good loyal Northern Rock mortgage customer, I will have to match off too unless they sort this out.

Don’t be fooled by the headline grabbing rates

When deciding on which savings account to go for, beware of the tricks used by some of the internet savers on offer.  You will find tantalisingly high interest rates, however a single withdrawal could result in a lower rate or even none at all for that month.  This is why ICICI’s HiSAVE account with 6.41% got the “two thumbs” up from me; no catch, no hassle.  Rates are guaranteed to be 0.30% above Bank of England base rate untill 31st of December 2011 (from the 1st of January 2008).  Alternatively, if you’re looking for a known brand, go for Sainbury’s Internet Saver currently at 6.25%.

Be sure to spread your savings

Before the run on Northern Rock, savers were only guaranteed a small amount of their savings if a bank were to go bust.  100% of the first £2,000 of your cash back and 90% of the next £33,000.  That’s £31,700 of the first £35,000 back.  Forget about anything after that.  Now the Financial Services Compensation Scheme (FSCS) guarantees 100% of the first £35,000 of your savings back.  So if you have more than £35,000 of saving, be sure not to put all your eggs in one basket.  Read Martin Lewis’ guide on how to protect your money.

ICICI comes out top for savers

ICICI’s HiSAVE Account has beaten well known high street savings accounts with a rate of 6.41% before tax and you still have instant access to all your money.  It is FSA regulated and is even more appealing now that they have recently joined the Banking code.