Newspaper article The Evening Standard (London, England)

Soaraway Savers; A New Banking Code Comes into Effect in March That Will Spell Good News for Savers. Lorna Bourke Has Advice on How to Take Best Advantage

Newspaper article The Evening Standard (London, England)

Soaraway Savers; A New Banking Code Comes into Effect in March That Will Spell Good News for Savers. Lorna Bourke Has Advice on How to Take Best Advantage

Article excerpt

Byline: LORNA BOURKE

THIRTEEN of the 40 banks and building societies cut savings rates over the Christmas and New Year holiday period. With bank base rate steady at four per cent, why have the banks been so mean?

The answer is, they are widening their margins - the difference between the rate they earn on loans and mortgages and the rate they pay on savings.

The reason is a new banking code, which comes into effect in March. The code is voluntary, but competition will ensure that the major players will be forced to comply. And the new rules are beneficial to savers.

The code requires the banks and building societies to move their rates to within 0.5 per cent of any changes in bank base rate. So if bank base rate moves by 1.5 per cent during the course of the year, the deposit takers will have to move the rates paid on their accounts by at least one per cent.

However, it doesn't mean that all savings rates will have to be within 0.5 per cent of base rate. If an account is currently paying 0.5 per cent - and there are plenty at that level - and bank base rate goes up 1.5 per cent to 5.5 per cent, the bank would have to move its rate to at least 1.5 per cent - within 0.5 per cent of the increase.

The new code will force the banks to pay a more realistic rate on customers' savings, rather than allowing massive amounts to languish in accounts where the rate has not been increased Halifax/Bank of Scotland (HBOS) was one of the first off the mark, cutting the rate on its Halifax Instant Saver Account by 0.15 per cent.

This brings rates down to 2.05 per cent for balances of less than pound sterling5,000, with a top rate of 2.35 per cent for pound sterling25,000 and above.

But even for these larger sums the rate is still well below the rate of inflation and significantly lower than the Bank of England base rate at four per cent.

Bank of Scotland is paying even less on its Premier Bonus Account. On balances of less than pound sterling500 the rate has been almost halved from one per cent to 0.55 per cent. First Direct, the telephone banking arm of HSBC, as well as Woolwich, Newcastle Building Society and Coventry Building Society, have all dropped their savings rates. First Direct has removed interest altogether for balances of less than pound sterling3,000 on its Bonus Saver Account.

UK savers are losing pound sterling5 billion in interest by keeping their money in poor-paying accounts, according to the Consumers' Association. With interest rates low and if you take into account inflation at 2.6 per cent and tax, many people are actually losing money from their savings, the consumer group says.

It pays to keep on your toes because even within the same savings institution, rates can vary widely. …

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