Print Page - Winners and loosers in the 'credit crunch'

Savers were dealt another blow today when the Bank of England's Monetary Policy Committee voted to cut interest rates for the fourth consecutive month.

Bank rate is now 1.5% - its lowest level since the Bank of England was founded in 1694. It has fallen from 5% since October.
Savers are really beginning to feel the effects of the rate cuts, particularly the millions of pensioners who rely on income from their savings to fund their retirement.

Kevin Mountford, head of banking at moneysupermarket.com, said: "Many savers will have been hoping for a reprieve in the interest-rate-cutting cycle this month, so today's announcement will be a real kick in the teeth. The Government is now under real pressure to do something to help the nation's savers, particularly as the Conservatives said earlier this week that they would abolish tax on savings interest for basic-rate taxpayers. In the meantime it is up to individuals to ensure they are getting the best return possible on their money."

Anyone with cash they can afford to lock away should act quickly to secure one of the best fixed rate deals available. ICICI Bank HiSave Fixed Rate Account is paying 4.65% for 12 months, while Anglo Irish Bank's One-Year Fixed Rate Bond is paying 4.6%.

If you haven't used your Isa allowance yet this year, a cash Isa is worth considering as interest is paid tax-free. Nationwide has a two-year fixed rate Isa at 4.0% and a one-year fixed rate deal at 3.75%.

Click here (http://www.moneysupermarket.com/savings/?Source=COMMS) to compare more savings rates.

What about borrowers - isn't today's rate cut good news for them?
Savers aren't the only people set to lose out from the interest rate reduction. A half percentage point cut in Bank rate should be good news for those with variable rate mortgages. However, as many of these people already know to their cost, such a benefit is not necessarily guaranteed.

As our article 'How has your lender responded to the rate cut? (http://www.moneysupermarket.com/c/news/how-has-your-lender-responded-to-the-recent-rate-cuts/0003782/?Source=COMMS)' shows, of the 20 largest residential mortgage providers, Lloyds TSB/Cheltenham & Gloucester is the only one to have passed on the full 3% reduction to its standard variable rate following the last three rate cuts. The bank has also confirmed that it will pass on this month's cut in full.

However, other lenders have been less forthcoming. The Council of Mortgage Lenders said that borrowers paying their lender's SVR, or who are on SVR-linked products, "should not expect a cut in Bank rate to be matched by an equivalent reduction in their mortgage rate".

And even those with tracker mortgages - which are supposed to move in line with Bank rate - may not benefit from this month's cut. Some lenders reserve the right to impose a 'collar' on their tracker deals which means that if Bank rate falls below a certain level, the reduction will not be passed on to the mortgage rate. Nationwide building society has already said that it will not be passing on further interest rate reductions to its tracker mortgage customers. Nationwide has a collar which can kick in if Bank rate falls below 2.75% - it decided not to impose it following last month's cut, but it will now be enforced.

Louise Cuming, head of mortgage services at moneysupermarket.com, said: "Lenders are now focusing on margins and profitability which means many borrowers will lose out following this latest rate cut. That said, mortgage rates generally are significantly lower than they were this time 12 months ago so many existing borrowers will be benefiting from cheaper monthly repayments. Life remains difficult for those trying to get a new loan however, because lenders continue to be cautious, so unless you have a sizeable deposit - around 25% - it will be very hard to get a new mortgage."

For more information on today's interest rate reduction, watch our latest video and for further analysis on what it will mean for you, read the article that will appear in your next Rate Alert email.

Source:- Moneysupermarket.com newsletter.

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