Changes in interest rates

15.08.2005 Over the last couple of months banks such as HSBC, NatWest, Lloyds TSB and Alliance & Leicester have cut their interest rates. The cuts have deeply affected savers with amounts over ₤500, who have seen their interest decrease as much as 0.35 points.

Over the last couple of months banks such as HSBC, NatWest, Lloyds TSB and Alliance & Leicester have cut their interest rates. The cuts have deeply affected savers with amounts over ₤500, who have seen their interest decrease as much as 0.35 points. On the other hand, the Bank of England’s base rate, usually a benchmark for all UK interest rates, has not changed since last year.
 
The cuts are expected to continue given that the Bank of England has reduced its rate from 4.75 per cent to 4.50 per cent. However, this is no encouragement to borrowers either. Credit card issuers, such as Sainsbury’s Bank, have increased interest rates by up to three points. The wide gap resulting from what is taken from borrowers and what is paid to savers broadens banks’ profit margin.
 
The most affected customers are those who have accounts with variable rates subject to the entities’ discretion. Savings accounts under fixed rates or with variable rates that move inline with the Bank of England’s are protected from these unexpected cuts. In general, variable interest rates can change at any time. Some entities offer discount rates for new customers. These attractive rates last, though just a set period of time and then they change to a less profitable figure. Products such as Nationwide’s E-savings or Egg Internet guarantee that, although variable, their rate will never go lower than the Bank of England’s.