2006 – A year of financial ups and downs

Lisa Taylor analyst at Moneyfacts.co.uk comments: “2006 proved to be a another interesting year in the world of personal finance, with new entrants such as Icesave shaking up the savings market, the ongoing OFT investigation and two base rate rises in the space of three months, not to mention a couple of policy U-turns from the Government.

But overall was it a good or bad year for UK borrowers and savers? We decided to take a look.

Savings

For savers, 2006 turned out to be a bit of a rollercoaster ride. For the first half of the year Moneyfacts.co.uk witnessed over 40 savings institutions reducing interest rates, in some cases by as much as 0.50%.

“But as the year unfolded, and the Bank of England Base rate increased by 0.50% within three months, rates predictably started to pick up again. But for those unfortunate customers of institutions which previously cut interest rates, they may in fact be no better off and find themselves back to square one.

“A joint survey between Moneyfacts.co.uk and the BBC revealed that, on average, open issue bank and building societies accounts rose by between 0.38% and 0.41% - 0.1% less than base rate. ISA customers only benefited from an average increase of 0.42%.

"However, when you look at the top end of the market, the providers which offer the market leading best buy accounts, the picture looks very different (see table below). With the exception of accounts that include a bonus, best buy rates rose between 0.53% and 0.68% during 2006.

“So what does this mean for the consumer? Those savvy consumers who have the time and inclination to chase rates and obtain the best possible return for their saving, tend to benefit from the rate rises plus a little extra. But those consumers who hold their savings in poorer paying accounts could see the net effect of their rate worsen, thus widening the gap further between the good and bad savings accounts.

“With such a mixed year for savers, it is even more important that you check you are still receiving the best deal and that your rate continues to remain competitive. Don’t assume that because your savings account is a tracker or has a rate guarantee linked to base, you will automatically receive the full benefits of any rate change. This has certainly not been the case for many savers this time round. If you find your savings sitting in a poor interest paying account, vote with your feet, there are some great deals to be found!

Mortgages

“Looking at the best buy variable mortgage rates, in 2006 these have outperformed the base rate rises, increasing on average by only 0.21%, which just goes to prove that the mortgage market remains incredibly competitive. However on the flip side to sustain such competitive rates we witnessed a series of increases to product/application/lending fees in the last 12 months.

“But for those consumers who are paying the lenders standard variable rate, an already expensive rate has became even more costly 2006, with the average SVR rate increasing by 0.51%.

“And with 37% of all mainstream mortgage lenders products using the SVR as an underlying rate, this 0.51% increase could affect many more consumers, not just those sitting on a revert to rate.

“So the mortgage and savings markets are not dissimilar, both widening the gap between competitive rates and the poorer paying products. So the clear message is, check your interest rates to make sure you are getting the best deal, as not all banks and building societies treat they customers in the same way!