C&G rate rise means silver lining for savers

SAVERS are the winners from the Cheltenham & Gloucester Building Society's mortgage rate increase. They are being offered higher rates and a new fixed-rate deposit bond.

The society, the country's sixth largest, is raising investment rates today on all its savings accounts by 0.2 percentage points, except the already-competitive London Share postal account, which pays 7.8 per cent net of basic rate tax (10.4 per cent gross).

The C&G is also launching a fixed-rate bond, the London Fixed Rate Account, paying 7.8 per cent net of tax (10.4 per cent gross) until 1 October 1993.

It is raising its mortgage rate from 10.75 per cent to 10.99 per cent for new and existing borrowers from today. The new rate compares with 10.65 to 10.7 charged by most societies.

C&G's move is prompted by the need to attract more money from savers and to compete with the First Option Bond, launched by National Savings last week, that has attracted over pounds 100m.

C&G's fixed-rate bond competes directly with the National Savings Bond. Its 7.8 per cent net rate applies on a minimum deposit of pounds 2,500.

First Option pays 7.75 per cent on amounts from pounds 1,000 to pounds 20,000 and 8.05 per cent net on pounds 20,000 plus.

The C&G had been undercutting rivals on mortgages for most of this year because it introduced its 10.75 per cent rate for new borrowers in January and applied it to existing borrowers in April. Major competitors did not come down to near this level until May when the base rate was cut to 10 per cent.

The society's rate has now leapt over those of rivals. But C&G specialises in larger loans and in offering higher rates to savers. Other societies are becoming increasingly nervous about their ability to hold the rates in the face of shrinking margins. Most are expected to review their rates next week.

Most of C&G's 330,000 borrowers have their monthly payments set once a year, so today's higher rate will have no immediate impact on their monthly outgoings. And the society says that unless there are further increases in its mortgage rate before 31 December, when the payments for next year will be set, 1993 payments will still be lower than those for this year.

C&G's new fixed-rate savings bond, the London Fixed Rate Account, has some advantages over the National Savings Bond.

The C&G's minimum investment is pounds 2,500 compared with pounds 1,000 on the National Savings Bond. But the maximum C&G will take is pounds 3 million against pounds 250,000 with National Savings.

C&G's account has more advantageous terms for withdrawals. The rate is guaranteed until 1 October 1993 but investors can withdraw early at a cost of 60 days' interest. National Savings pays no interest on withdrawals within the first year.

The Skipton Building Society also launched a fixed-rate savings account paying 8.25 per cent net (11 per cent gross) on a minimum of pounds 5,000, fixed until January 1993.