Life means life for savers with Bradford & Bingley's account

Click to follow

Bradford & Bingley will once again up the stakes in the battle for consumer deposits today, becoming the first bank to offer a no-notice savings account that guarantees to pay interest above the Bank of England base rate – for life.

Although many banks now offer competitive rate guarantees on savings accounts, some for as long as five years, no provider has gone as far as to offer a loss-leading account for the duration of a customer's life.

While the credit crunch has pushed current savings rates well above the base rate – with the top no-notice accounts now paying around 6.5 per cent, and many banks offering fixed rate bonds paying more than 7 per cent – historically, the best savings rates have tended to be much closer to the Bank of England rate.

The opening rate on B&B's new rate for life account of 5.25 per cent is some way below the best deals, but it is likely to prove competitive as the current tight credit conditions ease.

David Black, head of banking at Defaqto, the financial consultancy, said it was impressive that B&B had even refrained from inserting a get-out clause into its small print, claiming that the bank had insisted that life would really mean life. "There are higher rates out there," he said, "but not with this kind of guarantee."

Black added that B&B's product, as well as the raft of competitive savings products being launched by its competitors in recent weeks, demonstrated just how difficult conditions had become for the banks. "The amount of 7 per cent fixed rate bonds on offer at the moment is extraordinary," he said. "In relation to the Bank of England base rate at 5 per cent, it just goes to show how desperate they are to get cash in."

However, Susan Hannums of Abbey pointed out that with inflation rising, savers could still be losing money, even if they are earning more than the base rate. According to new figures from the Office of National Statistics, the Retail Prices Index hit 4.3 per cent in May. Ms Hannums said that at this rate of inflation, higher rate taxpayers would need to earn 7.17 per cent to beat both tax and inflation. Even for basic rate taxpayers, it's now necessary to earn a rate of 5.38 per cent to beat tax and inflation.