Melanie Bien: To back a winning deal, keep an eye on the rates

When it comes to our finances, we simply can't afford to be complacent. Shopping around for the best deal is a good start, but it should be just that - a start, rather than an exercise that's done once and then forgotten about.

When it comes to our finances, we simply can't afford to be complacent. Shopping around for the best deal is a good start, but it should be just that - a start, rather than an exercise that's done once and then forgotten about.

Once you've found that great mortgage rate, cheap car insurance or best price on your electricity, you need to return to it in a few months and check whether it's still as attractive as when you signed up. You can bet your bottom dollar it won't be - which is why it's so important to do this.

And with interest rates rising for the fifth time in 12 months last week to 4.75 per cent, there is plenty of movement in savings and mortgage rates, although perhaps not as much as there should be. Not all savings providers are as quick to pass on the full increase in the base rate to customers as mortgage lenders are to hike their rates by the full amount.

But in responding to the latest rate rise, a handful of savings providers were - unusually - quicker off the mark than the mortgage lenders. If providers react this quickly, it normally means they are getting something from the customer (ie, hiking mortgage rates) rather than giving something back.

Egg won the gold medal for a prompt reaction last Thursday, with an email that came through at 12.01pm, barely 60 seconds after the midday announcement from the Bank of England's Monetary Policy Committee. The internet bank announced that it is increasing its savings rate by the full 0.25 per cent.

Of course, Egg had no choice but to act, as it has guaranteed to match the base rate on its internet savings account until the end of 2007. But it still earns brownie points for acting so quickly. However, its customers will have to wait 10 days before the interest kicks in, whereas customers of Capital One's Tracker Plus account will get the full 0.25 per cent within five working days of Thursday's announcement.

If you are one of those people who has neither the time nor the inclination to monitor savings rates, and then switch again when they become uncompetitive, the answer is to choose a tracker account. The provider has no option but to increase the savings rate when the base rate goes up. But remember, when the base rate is moving the other way, it hurts to have a tracker because you will feel the full impact of rate cuts straight away.

Mortgage lenders usually increase rates fairly smartish after the base rate has gone up, but at the time of writing only Abbey had done so, passing on the full 0.25 per cent increase to borrowers. Most lenders tend to wait and see what the biggest lender, the Halifax, does, before shifting their own rates accordingly.

But if most lenders do increase their standard variable rates (SVRs) by the full 0.25 per cent, borrowers will find themselves in a worse position than when the base rate was last at 4.75 per cent. That was in September 2001, when the average SVR charged by lenders was 6.28 per cent, according to research from broker Savills Private Finance. If lenders pass on the full rise in the base rate this time around, as Abbey has already done, the average SVR will be 6.55 per cent.

So even though the base rate will be the same, the average SVR will be almost 0.3 per cent higher than three years ago.

With lenders clearly more than happy to line their own pockets, it is up to us to be vigilant. Friends complain to me that it is boring keeping an eye on their finances or they are simply too busy and have better things to do. But since when has saving money been a waste of time?

Ikea's little extra

A press release from the flat-pack specialist Ikea caught my eye. The retailer is going to charge customers 70p every time they make a purchase by credit card. Ikea defends the decision by saying that this is how much MasterCard and Visa charge it for transactions, and that it is simply passing the cost on to the third of customers who use this method of payment.

The new charge will save Ikea £3.5m a year, which it will use to slash the cost of its minimalist furnishings. It says the fee is modest, given that the average spend in one of its stores is £110. But in future, I'll be taking my Switch card.

m.bien@independent.co.uk

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