Banks cut rates in raw deal for savers

BANKS and building societies have been criticised for augmenting their telephone-number profits at the expense of unwitting customers.

A string of high street names, including online bank Egg, NatWest and Direct Line, and a host of building societies have been lining their pockets by cutting the rates paid on savings accounts weeks before passing on a rate cut to borrowers. And some have given savers a raw deal, passing on a greater reduction than last month's 0.25 per cent reduction in the Bank of England base rate to 4.5 per cent.

UK personal financial information provider Moneyfacts found it took many financial services firms up to an entire month to pass on a reduction to their existing mortgage customers. But, while they had to wait to reap the rewards of the Monetary Policy Committee's (MPC) move, thousands of savers saw the interest on their hard-earned cash hacked back almost immediately.

"Some providers have employed unfair tactics by cutting their savings rates before reducing their existing customers' variable rate mortgages," said spokeswoman Jane Dawson.

"In some cases the gap is just a few days, but in others it's almost a month. This 'gapping' or 'lagging' clearly saves providers a great deal of money.

"At the moment it's a small proportion of providers doing this, but there is a danger that others will follow suit in an effort to create a level playing field."

Although some providers claim they are not able to implement reductions to existing mortgages straight away, as they need time to advise customers of changes to direct debits and carry them out, Dawson added: "That being the case, they should play fair and hold back on savings cuts too."

Coutts & Co, the Co-operative Bank, Saffron Walden building society, Tesco and NatWest were among those who passed on a greater cut to their savers than borrowers. And the first three reduced savings rates by more than the quarter-point reduction - with Coutts & Co being the worst offender with an up to 0.40 per cent reduction in savings rates the day after the MPC made its announcement.

Newcastle building society was the only provider found "lagging" who gave its mortgage holders a better deal. It reduced mortgage rates by 0.28 per cent, against a 0.25 per cent cut for savers.

Mind the gap

DAYS between savings and mortgage rates cuts:

Co-operative Bank: 28

Saffron Walden BS: 27

Egg: 27

Coutts & Co: 27

Direct Line: 22

Newcastle BS: 21

NatWest: 17

Cheshire BS: 10

Bank of Ireland: 10

Chelsea BS: 7

Tesco: 4

West Bromwich BS: 2