Interest cuts hit savers

Millions of savers are losing out because a string of savings-account providers have cut their interest rates in recent days, even though there has been no reduction in the Bank of England's base rate since last August.

In the past week, both Halifax Bank and Nationwide Building Society, two of the country's largest savings providers, have cut rates on their internet-based accounts, by 0.15 and 0.2 percentage points respectively. First Direct has also trimmed the rates it pays some savers, as has the AA, a relatively new entrant to the market.

Andrew Hagger, of savings market analyst Moneyfacts, criticised the reductions, which have only been introduced on certain accounts. "Banks and building societies seem to be looking at where money is coming in and then deciding where they can get away with cuts," he said. "People expect reductions after a base-rate cut, but these adjustments are out of the blue and many savers will not even realise they are now being paid less interest."

Last week's announcements are just the latest in a series of interest-rate cuts that have hit millions of savers. Abbey, Alliance & Leicester, Lloyds TSB, NatWest, Royal Bank of Scotland and Woolwich have all reduced interest payments over the past month. They followed two rate reductions from ING, the Dutch bank which shook up the UK savings market when it launched in 2003 offering 5 per cent interest. ING maintained its deal until last August's base rate reduction when it lowered rates to 4.75 per cent, before cutting again to 4.5 per cent at the beginning of this year.

A spokesman for Halifax said reductions from providers such as ING had enabled more established banks to lower their own rates. "We price according to the market and after a period in which some providers have been very aggressive, the market is now shifting."

A spokeswoman for Nationwide added: "We've maintained our rates for some time but we've had an influx of money and that has cost us."