Warn Savers of Rate Changes

Posted 2008-01-14

Average rates of return on savings are falling below the rate of inflation, and the National Building Society is demanding that savers be warned when their high introductory rates are reduced.

 

Savers are enticed to banks and building societies with offers of high interest rates, but after an initial period, those rates often fall below the Bank of England’s base rate.

 

Nationwide is asking that savers be notified when their rates will be lowered and that they be offered better deals by their savings providers.

 

Many people do not pay attention to changes in their savings rate, and providers are taking advantage of their lack of interest.

 

Savings providers compete for customers in this highly competitive sector, according to Matthew Carter, director for savings at Nationwide.  In this environment, some providers seem less interested in taking care of their customers and more interested in profits and best buy status.

 

Many companies advertise introductory offers today, challenging savers who want to make good decisions.  Mr. Carter believes that savers should receive notice just as mortgage borrowers are notified when their rates are due to change.

Savers might be better off looking for savings plans with a constant rate of return rather than jumping from deal to deal, says Lisa Taylor of Moneyfacts.co.uk, the personal financial information firm.

 

She says savers can avoid the complicated process of starting new savings quite often by finding an account with a good interest rate.  Today’s market changes constantly and people who shop around for new deals spend a tremendous amount of time and energy when they might be equally well served with an account the performs well on a consistent basis.

 

The base interest rate was reduced by .25 percent in December, however, savers’ earnings have dropped by a greater factor than that.

 

In some cases, the savings rate has been cut by more than double the amount of the base rate cut.  Many accounts that carried exceptionally low rates have seen a much higher proportional reduction, says Ms. Taylor.

 

She points to Halifax Liquid Gold as an example.  Prior to the rate cut, the company’s accounts already offered a low 1.36 percent rate.  When the rate was cut by .36 percent, more than one-quarter of the original rate vanished.

 

Other big name lenders cut their rates, as well, including Alliance & Leicester, Abbey, HSBC, Halifax, Lloyds TSB, NatWest, and the Royal Bank of Scotland.

 

The current rate at Moneyfacts.co.uk is 3.77 (no notice at £1K), a rate lower than the rate of inflation.  Ms. Taylor fears that many savers will lose value in their savings accounts.

 

She says that long standing customers who have owned an account for quite some time are likely to be the worst hit.  Unfortunately, their loyalty is not paying them back.

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