Some of Britain’s biggest institutions, including Barclays, Halifax, Lloyds TSB and NatWest, left it until the last minute to announce how they would respond to the rate rise, publishing details on Friday, the same day their changes took effect.
They normally give customers more notice, but this year the news was bad: savings rates on many accounts have gone up by less than base rate.
The Bank of England put up the rate by a quarter point last month, from 4.5% to 4.75%, but savings rates have risen by an average of only 0.22 percentage points, according to AWD Chase de Vere, an adviser. When you factor in that many banks had sneakily slashed their rates before August’s move, savers have lost out on nearly £1 billion, it said.
Many institutions have also put up mortgage rates by more than base rate, which widens their margins and boosts profits at the expense of customers.
Halifax is one offender. The rate on its Liquid Gold account, which attracted a huge number of savers in the 1980s when it topped the best-buy tables, has gone up by a mere 0.05 points. It now pays 0.65% on balances up to £5,000 — 4.1 points less than base rate — a far cry from its launch in 1984, when it paid 13.21% against a base rate of 10.5%.
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But Halifax is not alone: hundreds of thousands of savers with Nationwide, Lloyds TSB, NatWest and Northern Rock have all suffered increases below the rise in base rate.
HSBC, for example, slashed rates on its instant-access account by up to 0.45 points in June. The rate on balances between £1 and £9,999 went down by 0.24 points and it will rise by only 0.2 points tomorrow, to 1.2%.
Barclays cut some of the tiers on its cash Isa by 0.45 points in June, so even though it has passed on the full quarter-point rise this month, its customers are still worse off. Those with £9,000 in their account are now getting 4.2% compared with 4.45% in May.
Sue Hannums at AWD Chase de Vere said: “It’s outrageous that the banks and building societies have acted in such a cynical way. An increase in base rate should be good news for savers but millions of them have been completely let down.”
Hundreds of thousands of borrowers have also lost out because of these tactics. Royal Bank of Scotland, NatWest, Intelligent Finance and the West Bromwich, National Counties, Harpenden and Furness building societies have all upped mortgage rates by more than base rate.
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The worst offenders, however, are Co-operative Bank and the Norwich & Peterborough (N&P) and Nottingham building societies. Although they increased their standard variable rates (SVR) by a quarter point in response to last month’s base rate rise, this was the second increase their borrowers had suffered.
N&P put up its rate by 0.19 points in June and Nottingham added an extra 10 basis points to its SVR in July. Co-operative Bank customers were hit with a quarter-point increase at the beginning of August and now face another quarter-point rise this month.
So someone who took out a 25-year £150,000 interest-only mortgage on Co-operative’s two-year discounted rate of 5.24% will pay £63 a month more than they did in July. This is based on a deal available in June. The new two-year discount has a rate of 4.99%.
Co-operative Bank defended its decision, saying its SVR was still competitive compared with others in the marketplace.
However, brokers are critical. Nick Gardner at Chase de Vere Mortgage Management said: “Many lenders use rate changes as an opportunity to widen their profit margins and that is unacceptable. These exaggerated rate hikes raise tens of millions of pounds in extra interest for the banks and shareholders each year and hit loyal borrowers in the pocket.”
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Advisers say borrowers should keep a close eye on their lenders. Melanie Bien at Savills Private Finance, another broker, said: “Borrowers who have a variable rate need to monitor their lender’s attitude to passing on rate changes and switch at the end of the term if the lender repeatedly raises the SVR by more than base rate.”
Savers and borrowers should also prepare themselves for further rate rises, especially after data last week showed the housing market is still strong, which may encourage the Bank of England to consider another move. Many economists expect base rate to rise to 5% in November.
If you want to protect your mortgage from further rises, the best two-year fix is from Halifax at 4.49%, although it has a fee of £1,499. This is cheaper than the best variable tracker from Alliance & Leicester, which is 0.22 points below base rate, giving a rate of 4.53%.
For borrowers looking for a longer-term deal, it is cheaper to fix for 10 years than five. Woolwich has the best 10-year fix at 4.98%, while the cheapest five-year deal is from Cheltenham & Gloucester at 5.09%.
If you are happy to go for a variable rate, advisers recommend going for a tracker rather than a discount. This is because trackers are linked to base rate so they are much fairer; you are guaranteed to get any rate rise or cut in full.
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Savers who want to benefit from another base-rate rise are advised to opt for a tracker, which should always move in line with the Bank of England.
Hannums recommends Chelsea building society’s Double Guarantee account, which has a rate of 5.25%. It promises to be at least 0.5 points above base rate until May 2007 and then at least equal to base rate until May 2008.
She also likes Yorkshire building society’s Internet Saver, which guarantees to pay at least base rate until February 2007. The rate is now 5.1%.
GLASWEGIAN COUPLE ADMIRE YORKSHIRE’S STRAIGHT TALKING
STUART AND ANNE ROSS, aged 30 and 28, have an Internet Saver account with Yorkshire building society. The couple, from Glasgow, chose the deal because it guarantees to pay at least base rate until the end of February next year. The rate is now 5.1%, having increased by 0.25 points after last month’s rate rise.
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Stuart said: ‘Our mortgage is also with Yorkshire, because the building society has always given me confidence in the way it operates. The mortgage is fixed, so we don’t have to worry about further rate rises, and the guarantee on the savings account is also reassuring.”