Esther Shaw: Mind the 'gapping' on savings and loans

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The Independent Online

Expectation of a drop to 4.5 per cent was so great that many savings and mortgage providers had not only anticipated the move, but had factored it into their rates prior to the announcement.

But there was little justification for savings providers cutting the interest they were paying ahead of the latest cut in the bank rate. The cost of borrowing had been frozen at 4.75 per cent since August last year - meaning that, in theory, the cost of paying interest on deposits should not have changed, either.

Among those who pre-empted the Bank's decision, and slashed the rates to savers, are big names such as Birmingham Midshires, ING Direct, and Lloyds TSB and Cheltenham & Gloucester - both part of the group led by chief executive Eric Daniels - as well as smaller names such as the Universal and Cheshire building societies.

Now that interest rates have come down, savers need to be on their guard.

While you should expect savings rates to be cut by the full 0.25 percentage points, you need to watch out for profit-hungry providers reducing their rates by more than this amount.

You also need to watch out if you save with one of those providers who pre-empted last week's decision, as you could be faced with a double whammy, seeing your rates reduced yet again.

Sad to say, some banks do regard interest-rate movements as a chance to increase their profits - so you should see it as an opportunity to review the deals you are getting.

The same is true regardless of whether you are a saver or a borrower, as while rate cuts are supposed to be good news for mortgage holders, lenders have plenty of ways to stop borrowers benefiting, too.

In the past, when interest rates have moved, some banks and building societies have been accused of "gapping". This meant they were as quick as lightning to reduce savings rates, while lagging behind more scrupulous financial institutions when it came to dropping rates on mortgages. Worse, when some of these heel-dragging lenders finally announced a rate cut, they didn't actually pass on the full amount.

To be fair, this time around, some lenders have responded quickly to the cut. In the past few days alone, the Halifax, Intelligent Finance, First Direct and Northern Rock, among others, have announced a reduction in their mortgage rates by the full amount, either with immediate effect or from 1 September.

But there are still more who have yet to make the move. Are they planning to sit on their hands and watch the pounds mount up until they gauge where the market is heading? We'll have to wait and see.

While the good guys are keen to ensure both savers and borrowers benefit from the rate move, there is no denying it will have left some of the greedier providers rubbing their hands.

That's why you as a customer should see the Bank of England's decision as a chance to look at the rates you are getting and, if necessary, move your custom elsewhere.

Sam Dunn is away

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