Act Now to Beat Savings Interest Rate Cuts

By Diane Ray. Published on November 18, 2008 This post currently has no comments.

Savings Accounts
The Bank of England cut the base rate from 4.5% to 3% earlier this month. This was seen as good news by many borrowers. It of course raised the question over which mortgage lenders would pass on the rate cut in full and even prompted strong vocal input from Gordon Brown, the Prime Minister. Happily many of the lenders have now agreed to pass on the full 1.5% across different mortgage products.

Savers on the other hand are not so keen for interest rate cuts and are now suffering as many saving account providers have reduced their savings rates by the full 1.5% and in some cases by more than this. Louise Bond, personal finance manager at Uswitch, said ‘In the wake of the base rate cut numerous savings providers have taken drastic action in an attempt to safeguard their margins. For those consumers still looking to make the most of their savings some of the high variable rate accounts may look appealing, but with further base rate cuts predicted these rates certainly won’t stay around for long.’

Andrew Hagger of Moneynet.co.uk said ‘With the next rate cut expected as early as December 4, savers with funds available to put away for between 6 months and 2 years still have time to lock into a decent fixed rate, but only if they’re quick off the mark.’

Alliance & Leicester are currently offering 6.30% gross p.a. on their eSaver product. Interest is earned every month that no withdrawal is made and you can save between £1 and £500,000. To encourage you even more, if you have at least £10,000 in your account on 31 December 08, you will automatically be entered into a free prize draw for a chance to win £10,000 cash!

Halifax are offering their fixed rate web saver accounts with fixed interest rates aligned to a fixed term. The best rate for example is 6.25% for a 3 month term. Rates after this fall, as perhaps you’d expect with the further base rate cuts predicted, but even fixed for 1 year the interest rate is 5.5%. No withdrawals or further deposits are possible after the account has been opened. The minimum balance for this account is £500, but you can have up to £9 million in the account.

Another interesting type of savings account has been announced by the Newcastle building society, their Inflation Protection account, available as a bond or an ISA. This links the interest you receive to the RPI providing you with an interest rate equivalent to the percentage change in RPI in each of the years it runs plus 2.25%.

Locking in your savings for a fixed term may get an attractive interest rate but as a word of caution make sure you can isolate these funds and in this credit cruch won’t face the need to draw on them. Equally, whilst so much work has been done to address the recent banking issues, remember that if you have over £50,000 of investments it may be wise to spread your money across different entities. This is because the governement has not yet extended the Deposit Protection Scheme above this level.

Bookmark With: These icons link to social bookmarking sites where readers can share and discover new web pages.