The Monetary Policy Committee meet on Thursday 4th May and is widely tipped to leave base rate at 4.5 per cent, the same level as the last nine months.
If you thought this lack of rate movement has meant that rates in the savings market have been static for a similar period, you would be very much mistaken. I have already commented on a couple of occasions this year on the widespread rate cutting practice we have seen from the majority of the banks and building societies, and I'm sorry to be the bearer of bad news, but this is still going on. At least there is some positive news to report as well, especially for those looking for longer-term fixed rate savings deals.
The pattern that we have seen at Moneyfacts during 2006 seems to be that building societies have reviewed their entire savings account portfolio and applied rate cuts where required, whereas the banks and direct providers have been gradually drip feeding these changes to their customers over the last five months or so.
The level of changes seen over the last month have been relatively small, averaging around the 0.2 per cent mark, but no matter how minor, it still reduces interest income for consumers. If you're not sure if the rate has been cut on your account, give your savings provider a call to check, and keep an eye on the best buy tables in the press or on www.moneyfacts.co.uk to ensure you're getting a return that is in line with the best that is currently available.
The 'swap rates' for longer-term deals in the money markets have risen sharply over the last few weeks, which has meant that interest rates on fixed rate mortgages of two years or more have become more expensive. On the other hand this increase is good news for consumers as it has allowed a number of institutions to pass this on to their customers by way of improved fixed term interest rates.
Some examples of improved interest rate deals are as follows:
• Birmingham Midshires: 1 Year – up from 4.90% to 5.01%• Bradford & Bingley: 1 Year – up from 4.60% to 4.70%• Egg: 1 Year – up from 4.55% to 4.80%• Heritable Bank: 5 Year – up from 4.75% to 5.25%• Portman BS: 2 Year up from 4.75% to 5.00%• Tipton & Coseley BS: 1, 2 and 3 Year – up from 4.60% to 4.95%• Yorkshire BS: 2 Year – up from 4.80% to 5.00%
So, if you have some savings that you are prepared to 'put away' for a year or more, now may well be the time to take advantage of these increased rates.
With base rate now unchanged for almost nine months, consumers have become complacent when it comes to reviewing their savings, assuming that they will also remain untouched. However research teams at Moneyfacts.co.uk have reported that this couldn't be further from the truth.
With a further seven institutions announcing rate cuts during the last three weeks, this means that no fewer than 32 banks and building societies have cut their savings rates since the turn of the new year. The long list of culprits contains many of the market-leading providers including AA, Halifax, Heritable Bank, Northern Rock and the Yorkshire Building Society. If as predicted the base rate falls later this year, providers will almost certainly reduce rates further – a double whammy for consumers.
With many of these providers cutting rates across the board, and some imposing rate reductions as large as 0.45%, consumers will have almost certainly noticed a significant change to their interest returns.
The recently published financial reports of the 'big four' suggest falling retail profits within the UK, so without a downward movement in base rate since last summer, you have to ask yourself, are these rate reductions another means to boost the bottom line?
With profit margins being squeezed and competition ever increasing, keeping a healthy balance between deposits and lending will be key to retail banking success. A small savings cut of, say, 0.05% may go unnoticed by many consumers and one that a bank will hope will cause only minimal customer loss. However if the boot is on the other foot and you are the bank responsible for a pot containing many millions of pounds worth of customers' savings, a 0.05% cut in interest payable will certainly not go unnoticed when it comes to increasing annual profits.
ISA customers hit by cuts too
With another ISA season upon us, many providers have launched new mini cash ISA products or revamped their existing range to attract the new pool of customers come the 2006/07 tax year.
However, rather unexpectedly, Moneyfacts have also seen three mini cash ISA providers reduce their rates within the last week, in some cases by as much as a quarter percent. Is this the start of things to come?
Your bank may be quick to contact you when they've done something they think is positive, however don't expect them to be so quick to draw your attention to the fact that your savings account has suffered a rate cut.
My message is a simple one – "check your savings rates on a regular basis, as a market-leading rate may not stay that way for long."
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