Many savers with larger balances are suffering from widespread interest rate cuts as a large number of banks have been quick to pass January and April’s Bank of England base rate cuts on to their savings account customers. In a large number of cases banks have cut rates even further than the Bank of England, according to Investec Private Bank (‘Investec’).
Analysis of Investec’s latest Savings Index (the ‘Index’)1, reveals that almost nine in 10 (87%) savings accounts for balances of £25,000 or more experienced an overall rate cut in the period from 27 January 2008 to 27 April 2008, while a staggering one in six (17%) savings rates has been cut by more than the 0.5% drop in the Bank of England base rate over the same period of time.
The Index, which tracks the rates on savings accounts for balances of £25,000, also reveals that only one in five (22%) of these accounts pays more than the current Bank of England base rate of five per cent. Furthermore, almost one in six (15%) accounts is shockingly paying less than three per cent.
The average rate of 4.07% gross AER across all accounts for balances of £25,000 is well below the Bank of England base rate of 5%, but competitive rates are still available if savers choose their account carefully. Investec’s High 5 savings account, which always pays the average of the top five accounts as chosen by the independent research company Moneyfacts2, is currently paying 6.51% AER3. This demonstrates, says Investec, that even while the market as a whole is falling, good returns are still available.
Linda McBain, Head of Banking, Investec Private Bank, said: “It’s essential that savers with larger deposits find accounts paying consistently high rates of interest. Too many savers are losing out on potential returns by leaving their deposits languishing with banks and building societies that are paying derisory rates of return.
“Now more than ever savers need to check they are getting a competitive interest rate on their deposits. While most rates have been falling, it’s not all bad news for savers, as a minority of banks are offering savings rates in excess of six per cent.”
During the period 27 January 2008 to 27 April 2008, the Index shows that out of 924 accounts reviewed, 138 now pay three % or less for balances of £25,000, compared to 77 in October 2007’s Index results. It also shows that 61 accounts pay just two per cent or less in interest for balances of this size.