Savings banks protect own interests
Banks and building societies have been accused of acting to protect their own interests by drastically cutting rates on saving accounts by up to 2.55% following the Bank of England’s rate cut.
There were concerns that banks wouldn’t pass on November’s 1.5% interest rate cut to mortgage borrowers - however, there have been no such worries for the savings market, where providers appear to have acted quickly to protect their own interests.
Following the decision on 6 November to cut the base rate by 1.5%, 24 savings account providers have cut their rates. According to uSwitch.com, several providers have even cut their rates by an additional 1.05% on top of the base rate cut.
For example, Lloyds TSB has cut its term deposit accounts by up to 2%, while Capital One Savings has reduced its variable rate accounts by up to 2%. Norwich & Peterborough Building Society, meanwhile, has slashed its Gold savings and Family Regular savings accounts by 2%.
Louise Bond, personal finance manager at uSwitch.com, accuses banks and societies of being more than willing to pass on cuts - when it serves their purposes.
“In the wake of the base rate cut numerous savings providers have taken drastic action in an attempt to safeguard their margins,” she adds. “An alarming 19 providers withdrew some of their products from the market [after the rate cut], immediately closing themselves to new business, and seemingly in an attempt to steer the focus away from future product launches with significantly less competitive rates.”
You can find the best savings accounts in Moneywise's daily round-up of the market.
Regular savings accounts
The attraction of these accounts is the high interest rate they pay. They require customers to deposit money each month, without fail. They come with a number of restrictions, such as monthly deposit limits, no one-off lump sum deposits and restricted withdrawal facilities. Although they are marketed with impressive-looking rates, it’s important to remember that as your money builds up gradually, your overall return will be lower than if you’d deposited a lump sum.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.