Savers' base motive is to do nothing

Last week's base rate cut was good news for homeowners who, if they are on a variable rate or a tracker, will instantly see their mortgage repayments fall. But what about savers? The reduction is the first in two years, so banks and building societies may be quick off the mark with any cuts.

'A couple of institutions have said that they expect rates to go down quickly as it has been so long since the last cut,' says Rachel Thrussell, savings expert at Moneyfacts. 'Traditionally, the bulk of the building societies will cut on the first of the following month, while some of the newer institutions, such as Egg and Virgin, have usually reacted within two weeks. The big banks have tended to do something at the end of the month.'

Savers can currently receive up to between 5 and 5.25 per cent on their savings, and this could now fall by as much as 0.25 per cent, says Thrussell. However, institutions do not always make straightforward cuts in the same way they used to, she adds, with many tending to cut rates on some accounts by the full 0.25 per cent and on others by a lesser amount.

'Anyone thinking of moving accounts now should wait until the dust settles,' she says. 'Even if you are in a product that reduces its rate next week, don't move straight away. Wait until the beginning of September and see what all the other banks and building societies decide to do.'

At the time of writing, the best rate on an internet account comes from Northern Rock at 5.31 per cent gross (which includes a bonus of 0.71 for the first six months) for its online tracker, with the rate guaranteed to be no lower than 0.5 per cent below base rate. For a non-internet, no notice account, the best rate is currently from the Chelsea Building Society for its Rainy Day savings account at 5.25 per cent (which includes a bonus of 1 per cent for the first year).

Northern Rock reduced the rate on both its online tracker account from 5.41 per cent and from its Silver Savings online tracker from 5.1 to 4.89 per cent earlier in the week, which may have been a pre-emptive move. However, a Northern Rock spokesman said there was 'always a possibility' of a further cut and that it was currently reviewing both its savings products.

Chelsea Building Society said it had not yet reached a decision, but that any changes would take place on 1 September.

A spokesman said that its Triple Guarantee 90-day notice account, which currently offers a market leading rate of 5.4 per cent (including a bonus) with guarantees to stay 0.5 per cent above base rate for the first six months and then 0.25 per cent above for the following six months, said that the rate 'may go down sooner rather than later'.

'Rate guarantees aren't the be-all and end-all,' says Thrussell. 'All it means is that you know what the minimum rate you're going to get is, but if an account is guaranteed to be 0.5 per cent above base rate and is currently paying 5.4 per cent, for example, it could technically still fall to 5 per cent.'

ING Direct, which has just cut the rate on its internet savings account from 5 to 4.75 per cent, was one of the few institutions to announce that it will not be making a cut from the existing rate. Leeds & Holbeck, meanwhile, said it will be keeping open its one-year fixed rate bond, which pays up to 4.8 per cent. The account is fixed until 1 August 2006 and has a minimum investment of £5,000 with access available to 50 per cent of the amount invested without notice or penalty.