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Savings Rates Fall

Normally banks take a reactive approach to interest rates, staying inline with the rates as set by the Bank of England’s monetary policy committee, however in the month of July all of the major players in the savings market have cut the amount of interest that they pay to savers.

Most accounts have seen cuts in the region of a quarter of one percent, with some being reduced as much as 0.75 percent. One of the known market leaders in the savings field is ING direct, who were offering at rate of 5.0% AER to all customers – this rate will now fall to 4.75% on the 1st of August. This still leaves them in the top group in terms of interest paid, which shows that the rest of the savings market has made similar changes.

Sainsbury’s bank now heads the interest rate leader board for savings, offering 5.0% AER – however this is only for it’s Internet customers and the rate for high-street savers has been cut to 4.25% putting it around mid-pack of the main players in the market.

What is unusual about these cuts in the rates being paid is that they have not been preceded by a cut in the base rates, moving ahead of the curve in this way shows that the bank feel that a cut in interest rates is on the cards for the near future. With interest rates remaining static and at a high rate for such a long period, the banks can be confident that a rise in rates is not going to happen, and with the pressure continuing on the Bank of England from the struggling retail sector a drop in the base rate is looking more and more likely.

If the Bank of England does cut the base rate of interest, that would be good news for borrowers as it would lower the cost of loans and mortgages, it would also be just what high street stores want to hear, as lower interest rates stimulate sales.