A party for savers but here comes a pooper

By Steve Lodge personal finance editor

Friday's rise in the base interest rate, albeit a mere 0.25 per cent, is yet more good news for savers in a week when millions were already celebrating thanks to the higher-than-expected price at which Halifax shares joined the stock market. But savers should beware of becoming blase.

Savings account rates may be set for a third rise this year, but that is from an historic low. After the latest round of increases we are still only talking respectable rather than resplendent. In addition, too many of the banks and societies are still giving their best deals on new accounts, rather than to their long-suffering customers. So savers have to be prepared to switch.

It is also important to bear in mind that savings rates do not rise in isolation. The obvious downside is higher mortgage rates, but even if you are not a borrower, further rises could still hurt you.

Higher interest rates are normally bad news for shares, thanks to the simple logic that they increase the attractions of holding cash and therefore reduce the relative attractions of holding shares. The latest base-rate rise was shrugged off by the stock market on Friday but further increases may be more damaging. Given that the stock market already looks precariously high, and shares in financial companies are arguably the most over-inflated, windfall recipients could yet be disappointed by tumbles in the value of their handouts.

The party may well continue a while, however. People whose shares are held in the Halifax Shareholder Account can sell for free through the Halifax if they return the relevant form by Wednesday. However, if you don't have anything more in mind than keeping the cash proceeds on deposit then over the longer term you should be better off sticking with the shares. And all the signs are that Norwich Union, the next windfall, will join the stock market on Monday week at a bonanza price. So if you are due the free shares and have the money to buy more at a discount, you almost certainly should go for them - albeit not with your life's savings. And if you haven't sent off your application this is your last chance: the offer closes on 10 June.

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