The Good, Bad and Ugly Savings Accounts

Are savers getting a raw deal from banks and building societies? Are there good savings accounts out there or is it just a vista of the bad and the ugly?

The Bank of England reduced base rate to 5.5% in the run up to Christmas (no doubt in a gesture of seasonal good will). Although a hoped-for further base rate reduction did not materialise this month, conscience and notions of fair play haven't prevented some financial institutions from pillaging more than December's 0.25% cut from savers' interest rewards.

Meanwhile it's been reported that 1 in 5 banks has failed to pass on the cut in interest rates to mortgage borrowers. Twas ever thus; take with one hand and take more with the other. For instance, Alliance & Leicester at the beginning of this month cut savings rates by up to 0.5% but reduced mortgage rates by 0.2%.

Nationwide alleviated mortgages by the full 0.25%, yet punished savers with a 0.3% cut. HSBC has made cuts to savers of up to 0.49%.

Indeed, savers were being penalised months before the economy's longed-for December base rate cut. In some quarters savings rates have been cut by as much as 0.6% since last August; Lloyds TSB, for example, reduced its Online Saver rate by this amount.

Halifax clipped 0.59% of its Saver Reward which now pays a feeble 2.47% on £5,000 (provided you take money out no more than three times a year).

Closer to Decembers base rate cut, Abbey swiped 0.25% from savers in its entire range of accounts at the beginning of last month. NatWest and Royal Bank of Scotland siphoned out 0.2%, while during November Halifax had implemented interest rate reductions of up to 0.25%.

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More to follow?

Even so, the dust had yet to settle over the savings market. By the end of 2007 it was recorded that less than 50% of all banks and building societies had taken the axe to their savings rates. Presumably the others didnt want to be festive killjoys and preferred, like Alliance & Leicester, to wait until the new year before savaging savers.

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A couple of months ago, in the wake of the credit crunch, financial institutions were in hot competition to get their hands on savers' deposits. The Northern Rock debacle had prompted many savers to look elsewhere and £3.6 billion worth of deposits were withdrawn in the third quarter from ING when its rates became uncompetitive.