If they cut your savings rate, walk away

A crystal ball would be useful when it comes to financial planning. If we could foresee what the Bank of England was going to do with interest rates, home buyers could be sure their fixed, discount or capped-rate mortgage was the right choice.

A crystal ball would be useful when it comes to financial planning. If we could foresee what the Bank of England was going to do with interest rates, home buyers could be sure their fixed, discount or capped-rate mortgage was the right choice.

Take the Halifax's five-year fixed-rate mortgage set at 6.75 per cent, for example. This is pretty competitive, given that the base rate is currently 6 per cent. Householders can budget as their repayments won't fluctuate along with the base rate. It is also good news if interest rates rise much higher.

The downside is that if rates drop dramatically, which could easily happen over a five-year term, you will be left feeling aggrieved, especially as you have to pay a redemption penalty for the first three years (at 3, 2 and 1 per cent of the advance, respectively) if you want to get out.

Unfortunately, most of us have to hedge our bets and do a bit of guesswork when it comes to picking a mortgage. So it was interesting to note that certain banks cut interest rates on savings accounts last week even though the Monetary Policy Committee, which decides interest rates, does not meet until Wednesday. Woolwich cut 0.25 per cent off its Card Saver, Prime Gold and Premier Instant accounts last Monday. Barclays also cut 0.1 per cent off its instant savings account, on balances of £500 and above. Abbey National and C&G have also announced cuts in savings rates in recent weeks.

We are all familiar with mortgage rates rising within hours of the announcement of an interest rate rise. Strangely, though, it takes days for savings rates to be increased accordingly. Cutting rates ahead of an announcement seems somewhat premature.

As banks and building societies cut savings rates on the quiet, it is important to check the interest rate on your account regularly. If your bank or building society starts chopping the rates, you should switch to another provider.

There is no excuse for being stuck with a poor-paying savings account. Nationwide's e-Savings pays 7 per cent on balances of £1, while a number of other internet-based accounts pay 6 per cent or above on no-notice accounts (Egg and First-E). Or if you don't have internet access, Standard Life Bank pays 5.8 per cent on its postal account.

If banks aren't showing any loyalty towards their "valued" customers by cutting rates on a whim, why should we stick with them?

m.bien@independent.co.uk

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