Banks cash-in on base rate rise

Britain's banks today stand accused of clawing back £162million from their customers by failing to pass on the base rate rise to savers, enforced under the Bank of England.

Vincent Cable, Liberal Democrats MP, will say high street branches are actively "betraying the trust" of ordinary savers in letting their products lag behind recent base rate hikes.

It is expected the Treasury spokesman will single out a number of banks that use headline grabbing rates of up to 7 per cent while often failing to keep existing branch-based accounts in line.

Among Mr Cable's black list could be Alliance & Leicester's Easy Saving account, which has risen just 0.8 per cent against the Banks' rate rise of 1.25 percentage points over the past year.

Likewise, instant access accounts from the Halifax, Lloyds TSB and Woolwich also lag the base rate rise by at least 0.2 percentage points.

A recent rate war between Abbey National and Halifax has kept rates at a competitive level, with Abbey saying their savers can save twice as much and not be charged for withdrawal as severely.

Halifax has meanwhile explained its interest rates for 15 million customers relates to the overall cost of running accounts.

"We aim to offer a range of accounts, in order to give customers choice, but they need to review them regularly to ensure they maximize returns," said a spokesman.

Also reacting in advance to Lib Dem pressures, Alliance & Leicester insist their account offers a competitive rate of interest for a credit and branch based account.

Good deals for monthly income come from the Derbyshire Building Society at a minimum rate of £500 and paying 4.30% (5.37%) and Scarborough Building Society offering 4.08 % (5.1%) at a minimum of £5,000.

Overall, outlook for interest rates has changed as economic growth slows and the housing market loses momentum.

Most economists predicted two more 0.25 percentage-point rises in base rate before interest rates peaked, but now suggest just one more rise is likely before rates start to decline next year.

Jonathan Loynes, chief UK economist at Capital Economics, says: "We are still forecasting one more 0.25 percentage point rise in base rate, but this is looking less likely now.

"We are at or near the peak in interest rates. They will come down in the second half of next year if the housing market continues to slow."

Meanwhile, Vince Cable argues the financial sector must help people to save - with as much encouragement as it gives them to borrow.

"There are seven savers for each borrower," he said. "It is absolutely essential that the banking sector promotes saving over borrowing.

"There are a number of good headline rates for savers who bank online. But most people, especially those on low incomes, use branch-based accounts."

Northern Rock is just one company on the market that offers a variable rate through its Silver Savings Account for investors aged 50 or over, paying 4.08% on a minimum £10,000.

As the rate is variable, it will change with the base rate but NR pledge it will at least match the BoE level until January1, 2010.

 

25th October 2004

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