Base rate decrease not all ‘gloom and doom' for savers

The Bank of England's decision to cut base rate by 0.25% will be heartily welcomed by mortgage customers on tracker and variable deals. Savers, on the other hand, will treat the news differently.

However, as Karen Wint, General manager Marketing and Customer Services at Leeds Building Society explains, a rate cut in ISA season is not as bad is it may seem. She says, "Savers can protect themselves against changes in Bank Base rate, the prospect of higher inflation and still receive their interest tax-free.

"We specifically launched a new market leading 5-Year Fixed Rate Escalator ISA earlier this week giving rising guaranteed returns up to 6.50%. It starts at 5.55% in the first year, 5.75%, 6.00%, 6.25% and 6.50% in the subsequent years, giving an AER of 6.00%. There is also a monthly interest version with an AER of 5.90% for customers who require an income and both versions allow unlimited access to up to 50% of the initial amount invested at any time, without notice or penalty.

"The ability to lock into a rising market leading guaranteed return, combined with instant access to some of the funds at any time offers excellent flexibility and peace of mind. Customers know exactly what their tax-free return will be as well as having the comfort of knowing that they have instant access to 50% of their funds."

A cut in base rate may have an impact on inflation, which remains above the government's target, and food and energy prices show no sign of reducing. Karen continues "Savers have seen their real return eroded with decreasing interest rates and inflation. The Inflation Buster ISA delivers a return linked to the Retail Price Index (RPI), which is the official measure of how much goods and services bought by an average UK household changes. Items measured by the RPI include food, clothing, education and child care, council tax, heating and lighting and mortgage interest payments.

"It guarantees to beat RPI by 2.00%, which was on average 4.26% in 2007. For example, if RPI over the period is 4.26%, Leeds Building Society's Inflation Buster Bond would pay a return of 6.26%. Savers can invest this year's tax-free allowance; any previous ISA subscriptions and transfers in are allowed.

"Unlike many other providers we encourage the balances from previous years to be transferred into our products and don't set any maximums. Customers really do have a choice of how they maximise their returns and protect themselves against any base rate decreases."

For more information, visit leedsbuildingsociety.co.uk.