Time to secure a better rate

By SYLVIA MORRIS, THIS IS MONEY AND DAILY MAIL SAVINGS EXPERT
Updated: 18:00 EST, 28 March 2001

NEXT week, the Bank of England's Monetary Policy Committee is widely expected to cut interest rates in an attempt to ward off a full-blown recession.

HSBC expects a 0.25% cut in base rates to 5.5%. NatWest also predicts a 0.25% cut, if not next month then at least by the middle of the year.

This puts savers in the firing line. They can expect further cuts on their bank and building society savings accounts, even though the ink is hardly dry on the last cut, announced in February. Last time, some institutions dished out savage cuts to their savers, well above the 0.25% cut in the general level of interest rates at the time.

And beware: if you see advertisements listing new rates for savers, and your account does not appear, do not assume the rate has not changed. Under the Banking Code, there are a range of rules for informing different types of savers, depending on whether your account is run through the branch or by telephone, post or internet.

But there are a growing number of accounts which come with a comfort blanket in the form of a guarantee that the rates will not move dramatically out of line with base rate. You will get a competitive rate on these accounts rather than falling victim to the 'flash and slash' policy where a bank advertises top headline rates which can disappear when the rate is axed or the bonus vanishes.

These guarantees come on accounts offering easy access to your money rather than the old-style notice accounts where you have to give up to six months' notice to withdraw your money.

Cheltenham & Gloucester's Tracker telephone account, at 5.5% (4.4%) on £100 or more, comes with a long-term guarantee it will pay no less than 0.25% below base rate until January 1, 2004.

Saga Secure Savings, a telephone account open to savers aged 50 and over, launched earlier this year, pays 5.5% (4.4%) for a higher minimum of £5,000. It guarantees to pay no less than 0.25% below base rate while you run the account. It is also paying an extra 0.75% before tax until August 1 this year.

Coventry's CallSave Instant at 5.75%(4.6%) on £5,000 plus, guarantees to match base rate until September. Last time the guarantee ran out, the society extended it for a further term. Savers in Birmingham Midshires' SimplySave telephone account - currently paying 5.6% (4.48%) on £2,500, excluding the 0.4% bonus payable until 1 July - will earn no less than 0.5% below base rate until January next year. But the account limits you to six withdrawals a year.

Guarantees on High Street accounts are less generous at 1% below base rate. But, at current base rate, that means a rate of 4.75% (3.8%). This is head and shoulders above some other rates in the High Street, where you can earn less than 1% before tax (0.8%).

Bristol & West's branch-based Easy Life Instant Access comes with a guarantee that it will pay no less than 1% below base rate until January 31, 2003, on a minimum of £500. Bradford & Bingley has a similar guarantee, but with no time limit - and is currently paying a higher 5% (4%). These top-paying accounts tend to limit your withdrawals. With Bristol & West, you are limited to six a year and a minimum transaction of £100.

At Bradford & Bingley, minimum £2,000, it is a minimum withdrawal of £250. Online enthusiasts can also enjoy guarantees. Bristol & West Online Easy Access at 6.6% (5.28%) for £1,000 or more, comes with a guarantee than it will not pay less than 0.5% below base rate until February 26, 2003.

• Project manager Simon James, 36, from London, opened a Cheltenham & Gloucester Tracker account earlier this year. 'I sold my flat and have not yet bought anywhere else, so I needed a safe home for my money. It offers an attractive combination of reasonably quick access and good rates of interest,' he says. The rate will remain competitive because it is linked to base rate. In line with most telephone accounts, savers need to allow a few days for the money to be switched to their designated account.