Rates are up: don't get short-changed

You should now be getting more for your savings, says Melanie Bien. But if your bank is dragging its feet, you can vote with them

The increase in interest rates last week will have cheered a minority of savers: these are the ones whose accounts promise that any rise in the Bank of England base rate will be passed on to them.

But for those who don't have such a guarantee, whether they benefit from a rate rise is rather hit and miss. It depends on the account provider. Some pass on the full amount but, confusingly, not every time there is an increase. And others pass on just a proportion of the base rate rise.

If your bank doesn't give you the full 0.25 per cent rise, consider moving to one that does. Otherwise, with further rate hikes expected this year, you could miss out on even more potential gains.

Within minutes of the Monetary Policy Committee's announcement, internet bank Egg said it would pass on the full 0.25 per cent to its Internet Savings customers, giving them a payable rate of 4.25 per cent gross. Of course, Egg has to do this as it guarantees to match the base rate until 31 December 2007. New customers also benefit from a 0.75 per cent six-month bonus when they open an account - giving a payable rate of 5 per cent gross for the first six months.

Tesco Personal Finance also announced, within minutes of the base rate rise, that savers would get the whole 0.25 per cent increase, giving a payable rate of 3.1 per cent gross on balances of £1. Abbey said it would pass on the full rise on "most" of its savings accounts from Monday for new business, and from June for existing customers.

And that was that. Other providers stayed silent, though most managed to hike their standard mortgage rates pretty quickly.

If you aren't earning the best interest on your savings that you could be (check our "best buy" tables on page 34), switch to a better account. And take a historical view: which providers have a track record for passing on the full rate rise soon after it happens, and which haven't? Otherwise, you could open an account with an attractive rate, only to discover months later that it no longer looks so good because you haven't benefited from any further rate increases.

The last time the base rate rose, by 0.25 per cent in February, several account providers didn't pass on the full amount. Alliance & Leicester raised the rate on many of its accounts by just 0.05 per cent, while Halifax raised the return on its mini cash individual savings account by 0.15 per cent. HSBC simply said it was freezing its savings rates until the next base rate movement, so we should see some action from the bank in the next few days. If not, savers should switch to another provider.

When choosing an account, be wary of gimmicks such as bonus introductory rates: these get the provider into the best buy tables but are withdrawn months after you sign up. For example, Birmingham Midshires is paying 4.55 per cent gross interest on its easy access Telephone Plus account. But this includes a 0.85 per cent bonus for a year, after which you end up with a much less attractive 3.7 per cent gross.

Also, watch out for deals that attach lots of conditions to withdrawals. The above account is limited to six a year. And a new account launched last week by Leeds & Holbeck may give customers unlimited access to their funds at any time without notice or loss of interest, but you have to withdraw a minimum of £1,000. You also need £5,000 to open this account, and must keep a balance of at least £5,000 at all times.

However, the rate is guaranteed at 5 per cent gross until 31 May 2005, after which time it will either match or better the Bank of England base rate until 31 May 2005.