Rising interest rates kick-start savings

Increases in interest rates may be punishing for mortgage borrowers, but the five rises since last November have helped to kick-start people's savings habits, according to research out today.

Around 29% of people said they had increased the amount they save by an average of ?107.66 a month as a result of interest rate increases, the equivalent of ?1.48bn a month across the country as a whole or ?17.7bn a year.

The Bank of England has increased interest rates by a total of 1.25% since November 2003, and many economists predict there will be a further hike before the end of the year.

Younger people are most likely to have started saving more as a result of the recent interest rate rises, with 42% saying they have increased the amount they set aside, followed by 40% of people aged between 25 and 34.

However, increased rates have had least impact on people in the 55 to 64 age range, only 22% of whom say they are now saving more each month.

Commenting on the research, Donald Jarvie, savings manager at Sainsbury's Bank, said: "Higher interest rates are clearly encouraging more people to start saving. Indeed, there are now around 50 savings accounts paying 5% interest or more.

However, he warned: "Savers need to be careful as around 40% of these rely on introductory bonuses. Others include restrictions such as limiting the number of withdrawals that can be made or only offering top rates to existing customers."