Banks cut rates and hope savers will fail to notice

SAVERS are being hit with sneaky rate cuts even though Bank of England base rate has been stuck at 0.5 pc for three years.

Big High Street names such as Halifax, lloyds TSB and RBS have chopped rates on accounts that used to be competitive deals.

But they have been closed to new savers and replaced by newer, better-paying versions as banks and building societies look to attract new money.

There are more than 1,700 of these old savings accounts, according to rate monitoring website Savings champion.

lloyds TSB and Santander have around 100 between them.

The average rate on new easy access accounts has topped 1 pc for the first time in two years, figures from data analysts Moneyfacts show.

But the figure includes only those open to new savers. A host of older accounts have already hit rock bottom at 0.08 pc after tax (0.1 pc before). And those that haven’t are a potential target for a cut.

‘We can expect more cuts on accounts closed to new savers,’ says Kevin Mountford, head of savings at comparison site Moneysupermarket.

‘Never before have banks had to pay such a high premium over base rate to encourage new savers. They can’t sustain these rates over the long term. Savers need to be vigilant.’

Banks and building societies have long manipulated interest rates for savers, but in the past they have done it at the same time as a base rate change in order to make money.

When base rate rose, rates on savings accounts would rise by less. When base rate fell, savings account rates were chopped by more. But in the past three years, with base rate frozen, they have been unable to do this. Rates on some flagship accounts had already plunged to 0.08 pc (0.1 pc).

The result has been a spate of new savings accounts with attractive rates — in some cases, five or six times the official 0.5 pc interest rate. In the past three years, banks and building societies have launched more than 450 easy access accounts, figures from the data analyst Defaqto reveal.

On top, we have seen more than 90 new variable rate cash Isa accounts.

Some came with a bonus for the first year, which would automatically cost them less once the bonus disappeared.

But some still paid well over base rate and it is these which are being hit.

Savers in RBS cash Isa Plus earn 2.7 pc tax- free against 3.51 pc last month. lloyds TSB cash Isa rate has dropped to 0.41 pc from 0.9 pc. c&g, part of lloyds, cut the rates on its Guaranteed Branch Saver from 0.6 pc after tax (0.75 pc before) to just 0.21 pc (0.26 pc).

Other cuts include AA Internet Access Account Issue 1 to 0.37 pc (0.46 pc) from 0.76 pc (0.95 pc), and BM Savings Direct Isa closed accounts from 1.75 pc tax-free to 1.26 pc. These brands are part of the Halifax.

Skipton BS cut rates on its leading cash isa — closed to new savers — at the start of this year to 1.6 pc from 1.8 pc.