Personal Finance: Mind the trap when rates fall
Borrowers welcome a cut in interest rates but savers should hunt for guarantees, says Clifford German
Sunday 13 December 1998
Banks and building societies have also been known to take advantage of investors by selectively reducing the interest on accounts that they are no longer actively promoting, leaving unwary savers even more out- of-pocket.
Banks and building societies both subscribe to the Banking Code, which commits them to advertise changing interest rates in the media, and in the branches, but not everyone reads the papers and not everyone regularly does their business in the branch these days.
A new version of the code comes into operation at the end of March next year, but it will still not be compulsory for them to notify savers individually and, to be fair to them, the postal system would probably collapse under the sheer weight of mail if every account holder had to be notified by post every time rates changed.
In the meantime, however, a number of banks and building societies do now offer "guaranteed" rates of interest. Rates will still fluctuate, and they are not guaranteed to be the best rates currently available, but they will remain linked to a published benchmark rate, usually base rate, giving savers some sort of "guarantee" that they are not being cheated.
"Guarantees" come in two different types, those which track a well-known yardstick such as base rate or a money market rate like LIBOR, and those which offer an average of either the best or the biggest high street operators and recalculate their rates each month. Neither type of account guarantees the best rate, and those linked to rival rates by definition will be a touch below the best available at any one time. But at least there are no traps for the unwary or those too busy to keep close tabs on changing rates.
Close Brothers introduced its pioneering Crystal Account in 1995, promising to pay within a half per cent of base rate at a time when rates were actually rising. Skipton building society's protection bond offers a fixed rate until March 2000 when it switches to base rate. Notting- ham Imperial building society guarantees to pay half per cent above base rate until the millennium, although this product may not be on offer much longer. Egg, the Prudential's new account, promises to pay 8 per cent until the end of this year, then at least 0.5 per cent above base rate next year, followed by base rate until January 2001.
Virgin Direct's deposit account pays 1 per cent under base rate on amounts as low as pounds 1 and the rate will stay at 6.25 per cent for the time being. Other deposit accounts offer rates linked to the average of leading competitors. Saga guarantees its savers that they will receive the average of 10 leading high street savings bodies. Its current rate on pounds 5,000 is 6.55 per cent, which could go down to just over 6 per cent next month. FirstActive (0800 558844) is currently paying 7.16 per cent on pounds 1,000. Norwich Union's index tracker account is currently only available to customers with maturing Norwich Union policies, but is expected to go on offer to the wider public next month.
- 1 Qataris pledge to expand Canary Wharf
- 2 #JeSuisEd: People share photos of themselves eating awkwardly in solidarity with Labour leader
- 3 Women think Irish men are the sexiest, survey finds
- 4 Florida couple forced to register as sex offenders for having sex on public beach
- 5 Watch eerie drone footage of destroyed building in Stalingrad
#JeSuisEd: People share photos of themselves eating awkwardly in solidarity with Labour leader
Florida couple forced to register as sex offenders for having sex on public beach
UK election candidates: 'Nasty party' Ukip faces fresh questions on eve of vote
Who should I vote for in the general election? Take The Independent's interactive quiz to find out which party's the right choice for you
Ohio 'Shawshank Redemption' fugitive Frank Freshwater arrested after 56 years on the run
In defence of liberal democracy
General Election 2015: Post-election 'shambles' looms as 70 per cent of voters say SNP 'should not be able to veto UK government policies'
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
General Election 2015: Sturgeon claims Scots 'appalled' by Ed Miliband's refusal to work with SNP
iJobs Money & Business
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...
£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...