The Base Rate Cut -- One Month On

by Rachel Wait on 07 January 2009  |  28 comments
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December's base rate cut to 2% has had a significant impact on all of us. But which mortgage lenders and savings providers have been kind to their customers and which have been downright mean?

It's been exactly a month since the base rate was cut to 2%, and quite frankly, I'm depressed. The interest on my Halifax savings account has dropped yet again, and is now paying out a measly 1% AER. And with another base rate cut likely this Thursday, I won't be surprised to see my interest rate drop to zero.

To top it off, I'm on a fixed-rate mortgage, so I'm seeing no benefit from the base rate cuts whatsoever. But then again, with many lenders failing to pass on the full rate cuts to their customers, even variable rate borrowers are missing out.

So let's check out which banks and building societies have treated their customers more generously, and which have been totally and utterly stingy.

Savings

According to research from Fool partner Moneyfacts, 77% of providers have announced cuts in their savings rates in the past month, with the majority passing on the full 1% or more.

In fact, the data shows the average savings rate on a no notice account now stands at just 1.48%, with 38% of the accounts paying a rate of 1% or less on balances of £5,000. Absolutely pitiful.

The sinners

On the whole, the worst offenders have actually been building societies, not banks. Stroud and Swindon Building Society tops the list, cutting its savings interest rates by up to a whopping 2.5% since the 1% base rate cut in December. Its Classic Gold Savings Account is now one of its worst paying accounts, paying as little as 0.25% AER.

Kent Reliance Building Society has also cut its rates by up to 2%, while Chesham Building Society has reduced its rates by 1.35%. Other offenders include Northern Rock, passing on a 1.29% cut, and Nationwide and Abbey, both passing on a cut of 1.1%. The majority of other banks passed on the full 1% reduction.

The saints

According to Moneyfacts data, only 10 providers `generously' passed on less than a 1% cut. These include Anglo Irish Bank (0.75%), Marks & Spencer Money (0.5%) and Manchester Building Society (0.5%). Anglo Irish is still paying 4.55% AER on its variable Easy Access Account, as well as 4.6% AER on its one year Fixed Rate bond. Although this may not sound particularly exciting, you'll be hard pushed to find much better.

If you want to check out what other rates are on offer on savings account, check out this excellent article by Szu Ping Chan.

Mortgages

According to Moneyfacts, 76% of mortgage providers have announced a cut to their standard variable rate (SVR). But only 19 lenders have passed on the cut in full.

According to the research, 72% of lenders only passed on a cut of between 0.15% and 0.99%. Yet the cost of borrowing has fallen sharply for banks - the inter-bank lending rate (LIBOR) is now just 0.64% above the base rate, the smallest margin seen since the 18th March.

The baddies

Several building societies have passed on very little or none of the base rate cut to borrowers, with some reasoning they are doing this so they can offer better interest rates to savers. So you would therefore presume their savings rates would be pretty competitive.

Yet if we take a look at the five lenders that still have an SVR of 6% or above (having left their rates unchanged following last month's base rate cut), you'll see that three of them have already been named above as the worst offenders in terms of savings rates.

Source: Moneyfacts

Stroud and Swindon, Kent Reliance and Chesham, all have ridiculously high SVRs and yet they have also cut their savings rates by more than 1%. So clearly winners in this scenario are the lenders themselves.

Out of the banks, Alliance & Leicester, Northern Rock, Halifax, and ING Direct are among the worst offenders. Alliance & Leicester and Northern Rock have only cut their SVRs by 0.5% to 5.34%, while Halifax and ING have lowered their SVRs by just 0.25% to 4.75% and 4.59% respectively.

The goodies

At the top of the list is Cheshire Building Society which has cut its SVR by an impressive 1.94% to 4%. Cheltenham & Gloucester, HSBC, and First Direct are among the lenders that have cut their SVRs by the full 1%, falling to 4%, 4.44%, and 3.69% respectively.

Whether these lenders will be so generous if the base rate is cut again on Thursday, no one can say, but I doubt they will be. One thing for certain though is that savers are definitely likely to continue losing out. And that, in my opinion, is just not on!

More: Time To Fix It? | Earn A Colossal 8% On Your Cash

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