Societies shaving the rates: The battle to win borrowers is forcing down the interest paid on instant-access savings accounts

BUILDING societies are stealthily shaving the interest rates they pay to savers on many of their instant-access accounts - despite the fact that long- term interest rates over the past few months have leapt upwards.

In recent weeks, a series of small ads have appeared in the press announcing 'revisions' to interest rates paid to savers.

Money pounds acts, a monthly guide to savings rates, calculates that interest on instant-access deposits of pounds 10,000 or more with the top 13 building societies has dropped from an average of 5.3 per cent to 5.16 per cent since February.

Savings rates usually move up or down with mortgage interest repayments. But in recent months, mortgages have remained at the same level while savers have found the interest paid on their accounts has continued to fall.

Among the societies to make cuts last week was the Leeds. It announced that interest on savings over pounds 10,000 in its Bonus Gold account would be cut from 6.4 per cent gross to 6.25 per cent.

The reductions were not the first this year. In April, rates were cut from 6.65 per cent. Similar, though smaller, cuts apply further up the scale, while rates on other amounts have remained constant.

Northern Rock last month announced interest-rate reductions across virtually its entire range of savings accounts.

A spokesman said: 'It is difficult for our customers to understand when base rates have remained constant at 5.25 per cent for the past few months. But we are in business to survive.'

Paul Duffin, head of savings at the Leeds, said there was a danger for any building society that it could be paying too-high rates to savers. In effect, the money it borrows from savers costs too much.

Margaret Schwarz, chief economist at Abbey National, said: 'We have got to get the balance right between the often conflicting interests of three sets of customers: savers, borrowers and our own shareholders.'

Variable mortgage interest rates have remained stable at 7.74 per cent. But for some time, many building societies have been competing for a dwindling number of borrowers with a range of offers, including first-year discounts and cash- back deals. This has led to downward pressure on savings rates.

'We did not follow cuts in savings rates in the early part of the year. It was only recently that we brought them down,' Ms Schwarz said.

She added that borrowers had paid the price of the Government's economic policies up to late 1992, while savers had gained with higher interest rates. In the past two years, that position has gradually reversed. Abbey National, which is now classed as a bank, also cut rates on several of its accounts last week.

Its Regular Saver account has fallen twice since December, reducing rates on savings above pounds 25,000 initially to 6.8 per cent gross. Last week, rates came down again, this time to 6.5 per cent.

At the same time, interest paid to those prepared to commit their money for five years has rocketed.

In February, the best fixed rates stood at 5.95 per cent. Last week, Chelsea Building Society launched a bond paying 9 per cent gross over five years.

Yorkshire Building Society has also launched a five-year bond offering a guaranteed 8.5 per cent gross.

Although it is a slightly lower rate, the rate holds for four years, giving slightly more flexibility.

For those chasing the best instant-access rates, there is a problem. Even after finding the best rates available, they may be beaten by another society the following week. The best chance is to look for a rate which has already undergone significant trimming, possibly more than once.

Britannia Building Society's Capital Trust now offers 6.15 per cent on accounts with at least pounds 10,000 in them. This is despite a 0.15 per cent cut in April.

Birmingham Midshires' First Class postal account offers 6.1 per cent on savings of pounds 10,000, even after two sets of cuts since February, which shaved rates down from 6.3 per cent.

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