Nationwide is first to trim savings rates: Good prospects for home loans but savers are likely to suffer. Neasa MacErlean and Maria Scott report

NATIONWIDE, the second-largest building society in the country is cutting rates on most of its savings account by an average of 0.3 percentage points from tomorrow and is not ruling out further cuts if the base rate tumbles.

The society says the cut is an adjustment to bring it into line with other societies but the move was encouraged by signs that the UK base rate is likely to come down as a result of the sluggish UK economy and the turmoil that engulfed the exchange rate mechanism this week.

Nationwide did not rule out a further cut in savings rates if the base rate is cut from its present level of 6 per cent. Its pre-emptive strike confirmed that savers will lose from this week's events.

Nationwide said it was concerned about margins but the alternative would be to raise mortgage rates, an untenable option. Other mortgage lenders are still keen to trim rates for borrowers and predict some movement if the base rate falls.

But David Gilchrist, general manager of Halifax Building Society, said it would be impossible to cut mortgage rates without cutting rates for savers as well. Savers have now seen returns on instant-access deposit accounts cut by up to two-thirds since the base rate reached 15 per cent in October 1989.

Mr Gilchrist said headline rates of interest were not the only factor for investors to consider. 'It is difficult for savers to accept reduced interest rates but there is a growing feeling that low inflation rates are with us for some time. So the real rate of return on savings is attractive.'

Abbey National was more guarded and indicated that it would think hard before cutting savings rates. It may delay cutting the mortgage rate after a cut in base rates, saving money that could shore up savings rates.

Margaret Schwarz, senior economist at Abbey, said that while the real return on savings might be reasonable, this did not cut much ice with pensions. 'The liquid savings market is very competitive. Consumers are looking for a high yield.'

Ms Schwarz predicted there would be two half-point cuts in the base rate by the end of the year. Abbey would not necessarily move its mortgage or savings rates on the first of these.

Savers may be tempted to try to lock into current rates of interest. But many financial advisers believe that the fixed-rate savings market is best avoided. Just as many mortgage borrowers tied themselves into high fixed-rate loans before rates began to fall, so many savers may be tying themselves down when rates have just about hit the bottom.

Berry Birch & Noble, an independent financial adviser, is still recommending variable-rate products rather than fixed-rate savings.

For example, Northern Rock Building Society has just cut its postal account rates but is still paying 7.5 per cent gross on pounds 20,000 deposits. By contrast, Halifax will only pay 7.2 per cent on pounds 10,000 deposits invested for five years.

Paul Boni of Berry Birch said: 'Those people who are looking to lock into building society fixed rates tend to get hammered when they try to get their money out. The arguments in favour of locking in at the moment are fairly weak.'

Mr Boni is particularly sceptical about fixed-rate products such as Chelsea Building Society's Premier Account. This guarantees its current rate of 8.5 per cent gross on pounds 5,000 deposits until the start of October. But from then on the society can bring the rate down as far as it wants, as long as it remains higher than its Instant Option account.

The rate on the Instant Option account is currently 4.25 per cent - half the rate being used to attract new investors into Premier. But if investors withdraw funds before October 1995 they will have to give 30 days' notice and lose 45 days' interest.

One area of the market that is likely to fall away if base rates are cut is guaranteed income bonds. However, rates are already very poor in this sector, particularly for one- and two-year bonds. Colin Jackson of Baronworth, a firm of advisers that specialises in income bonds, said: 'Lots of clients are coming away from GIBs and going into other products. But you can't have it both ways. If you want a good rate of return you are going to have to take a risk on capital.'

National Savings rates are likely to come under pressure if the base rate is cut. But the 40th issue of fixed-interest certificates is still available, offering 5.75 per cent tax-free over five years.

(Photograph omitted)