MONEY COMMENT
Rates Rise For Borrowers And Savers

By Cliff D'Arcy
February 10, 2004

When the Bank of England raises its base rate, banks and building societies adopt a two-speed approach to raising rates for their customers. They are very quick to raise mortgage rates, which means higher monthly repayments for homeowners. However, they always drag their feet when it comes to increasing interest rates for savers!

Another trick the banks employ is to increase mortgage rates by the full rate hike or more, while raising savings rates by less than the full increase. Of course, it makes sense for the banks to manipulate rates in these ways, because it increases their margins and, therefore, their profits. (As a shareholder of a major bank, this benefits me, but it comes at the expense of that bank's customers!)

So, what's happened since the Bank raised the base rate by 0.25% to 4% last Thursday? Well, Britain's biggest mortgage lenders have rushed to raise their rates. All these lenders have announced 0.25% rate hikes:

• The UK's three biggest lenders, Halifax, Abbey (LSE: ANL) and Lloyds TSB (LSE: LLOY) - which also owns C&G, have upped their standard variable rates to 6%.
• Barclays (LSE: BARC), the fourth-biggest lender, which also owns Woolwich, whacked its rate up to 6.04%.
• Nationwide BS, the fifth-largest lender, will raise its rate to 5.14% on 1 March.
• Northern Rock (LSE: NRK), no. 7 in the UK, has increased its rate to 5.99%.

Other lenders are expected to follow suit shortly, so watch out for an announcement by your lender any day now! HSBC (LSE: HSBA) - the ninth-biggest lender - stands alone, in that it has frozen rates for both borrowers and savers, with its mortgage rate remaining at 4.9% - the lowest of the top ten lenders.

A handful of companies have announced increased rates for savers, notably:

• Intelligent Finance will increase the rate on its Best Buy cash mini-ISA from 4.35% to 4.60% with effect from 20 February, which means that it still tops the savings tables.
• Marks and Spencer (LSE: MKS) is launching a cash mini-ISA on 16 February, which will pay 4.50%. This rate is guaranteed to be 0.5% above the base rate until 5 April next year.
• Yorkshire BS has increased rates on its e-ISA and e-Saver accounts to 4.10%, with another 0.25% on the way soon.
• Egg (LSE: EGG) will increase its savings rate to 4% on 18 February.

So, if you're unhappy with the way that the banks are quick to increase mortgage rates and slow to do the same for savings rates, don't put up with it. By shopping around, you could pay far less interest on your home loan and earn much more interest on your savings. Learn more about switching your mortgage and moving your savings - it's easier than you think!

More: Find better deals in our Mortgage and Savings centres.

The author owns shares in HBOS, parent company of Halifax.