ING tightens its savings belt another notch

ING Direct customers have been left wondering whether to carry on clinging to the bank's iconic orange and white lifebelt after it announced a second savings rate cut inside five months.

From 1 January, the rate will fall from 4.65 per cent gross to 4.41 per cent, the bank said last week. This change to the no-notice, no-strings account will come into effect only five months after the last reduction. Back in August, ING Direct's gross rate fell from 4.89 per cent to 4.65 per cent.

That cut was announced some weeks ahead of the Bank of England's decision in August to cut the base rate from 4.75 per cent to 4.5 per cent.

ING Direct's latest reduction comes despite the base rate having remained on hold at 4.5 per cent since then.

A company spokesman says "less favourable investment conditions" are to blame.

And he adds: "Some competitors are dealing with this in a different way - by imposing withdrawal penalties and by offering new customers table-topping rates while leaving their existing customers on lower ones."

Rachel Thrussell from the financial analyst Moneyfacts is among those who defend the provider. She stresses that, while customers may be disappointed, ING's second reduction matches those that many of its competitors have already undertaken this year. "Only it's doing it at a much later date."

But Susan Hannums from independent financial adviser Chase de Vere is less convinced. "This rate drop puts ING Direct on the cusp in terms of competitiveness," she says.

"If it drops its rates any further, I would advise savers to look elsewhere."

The most competitive higher-paying accounts - with no strings or catches - tend to be either internet-only or, outside cyberspace, to require a high minimum balance .

Newcastle building society, for example, pays 4.9 per cent on balances of just £1 on its internet-only NetSavings Issue 4.

Anglo-Irish Bank's Easy Access deposit account pays 4.8 per cent but savers need to invest a minimum of £500.

Higher rates are available on rival savings accounts elsewhere, but these invariably last only for a limited period.

"Other providers offer rates that include an introductory bonus, which then drops away," says Ms Hannums.

"If you go for [higher interest] in this type of account, you have to be happy to swap and change accounts when the bonus comes to an end."