As the snow falls savings rates follow suit

The falling base rate continues to punish savers as February brings another plethora of rate cuts, just days before the Monetary Policy Committee (MPC) meeting.

New research from uSwitch.com shows that in just 48 hours, 34 providers have already reduced rates on 43 savings accounts by as much as 1.25%. On average, these rates have dropped by 0.53%, 0.03% more than the 0.50% base rate decrease in January. The biggest casualty this month has been fixed rate savings accounts, dropping by an average of 0.58%. This is really bad news for consumers as fixed rates are the only beacon of hope in this climate, offering a guaranteed rate for the next 12 months.

Five biggest decreases:

Teachers BS Regular Saver - reduced by 1.25% from 4.35% to 3.10%
Halifax - Selected personal variable rates reduced and re-tiered by up to 1.00%
Halifax - Selected fixed rates reduced by up to 0.90%
Northern Bank (NI) - Fixed Term Deposits and Midas Investment reduced by up to 0.80%
Kent Reliance Building Society - variable rates reduced by up to 0.70%

More alarmingly, two providers have made two rate decreases on the same accounts since the beginning of the year. The popular fixed rate HISAVE 12 month account from ICICI Bank has dropped from 5.1% AER to just 4.3% AER since the start of January 2009. Although they have made two rate decreases of 0.45% (8/1/09) and 0.35% (30/1/09) totalling 0.8% in just 22 days this is still a competitive rate. Northern Bank has made a similar move on its Fixed Term Deposit account, cutting rates by up to 0.65% (8/1/09) and up to 0.80% (2/2/09) totalling 1.45% offering a new rate of 1.25% AER.

Rumina Hassam, personal finance expert at uSwitch.com, comments: "With the next MPC meeting fast approaching, we can't help feeling that savings providers will continue to cut rates regardless of the outcome. We fully understand that banks are under a lot of pressure as they experience the toughest economic climate since the early nineties; however it does seem shortsighted to cut rates by more than the base rate decrease. Surely, now more than ever savings providers should be doing whatever they can to encourage people to save rather than removing the main incentive?

"Savers also need to look after their own interests. Although rates are falling fast, there are still some good deals around. With £212 million withdrawn from ISAs in December, this is a clear indication that consumers either need the cash for day to day expenses or they have completely lost trust in the financial institutions. Withdrawing savings really should be a last resort for consumers as the current economic climate guarantees nothing but uncertainty."

Savers that do not need to access their money for the next 12 months can opt for Abbey's table topping Super Saver issue 4 which currently pay 5.5% APR. With this fixed rate, consumers with the average savings balance of £2,813 are guaranteed to earn almost £155 in interest in the next year. For people that cannot afford to lock their money away for a year, there are still some good deals available paying more than 3.5% APR. Tesco Internet Saver currently offers 3.6% APR, which on the average savings amount of £2,813, consumers could earn £101 if rates remain the same. However, all variable rates could be subject to change in the event of further base rate decreases.