Millions hit as bank halves savings rates

MORE than three-and-ahalf million savers using Britain’s most popular current account will see their interest rates cut in half later this year.

High street giant Santander was last night accused of ‘kicking savers in the teeth’ after announcing plans to slash rates by six times the amount the Bank of England reduced interest rates earlier this month.

The move by the Spanishowned lender applies to its flagship 123 current account – advertised by Olympic hero Jessica Ennis-Hill and F1 racing driver Jenson Button.

From November 1, rates will be halved from 3 per cent to 1.5 per cent on balances between £3,000 and £20,000, meaning savers will lose up to £300 a year in interest after paying account fees.

Money Mail revealed earlier this month that Santander was plotting the move, but the cut is worse than expected. The bank claimed yesterday it had to cut rates due to ‘the market expectation of interest rates staying lower for longer, compounded by increased costs brought about by changes in the banking industry’.

Bank of England governor Mark Carney has made it clear that interest rates could be cut further, after reducing them from 0.5 per cent to a record low of 0.25 per cent earlier this month.

But last night experts accused banks of taking advantage of the rate reduction to impose brutal cuts on savers, and warned there is worse to come.

Martin Lewis, of the personal finance website MoneySavingExpert.com, urged Santander’s army of 123 account holders to wait until the cut in November before choosing whether to switch banks and pointed out that – even at the reduced 1.5 per cent rate – it remains one of the best deals available.

He said: ‘Many millions of savers across the UK will feel like they’ve been kicked in the teeth. Santander 123 has been a beacon, shining out for those with a decent chunk of cash.’ He added: ‘It’s worth noting, the likelihood is Santander has chosen to halve its rate not simply because of the recent base rate cut but because there could be more to follow.’

Millions of people have opened 123 current accounts in a desperate bid to get a decent return on their money as interest rates on traditional savings accounts have fallen to record lows.

The average easy access account pays only 0.54 per cent, compared with 4.25 per cent in 2007 before the impact of the global financial crisis, according to personal finance research firm Moneyfacts.

This has made the Santander 123 account an increasingly popular refuge for savers. But after November 1 investors with the full £20,000 saved will see their £540 annual interest, after the £5 monthly account administration fee is deducted, cut to £240.

Chris Leslie, a Labour MP and former shadow chancellor, said: ‘This is a real time of crisis for savers. Banks and building societies are being opportunistic by quickly reducing rates by more than they should. It’s completely unfair.’