Banks cut savings rates

Banks and building societies are cutting interest rates on instant access savings accounts despite being desperate to attract more cash from savers, says MoneyExpert.com.

The independent financial comparison website says the average interest rate on instant access savings accounts has dropped from 3.76 per cent in January to just 3.3 per cent now.

And the number of accounts paying above 5% - the current Bank of England base rate - has decreased from 270 to 145 in just six months.

MoneyExpert.com believes the cut in instant access rates is a reflection of banks' efforts to attract long-term savings from customers in order to improve liquidity. They are boosting rates on bonds and other long-term products at the expense of instant access accounts.

Sean Gardner, director of MoneyExpert.com, said: "The drop in instant access savings rates reflects banks' efforts to encourage people to save for the long term. They want to know they have money to play with and can't afford to offer as good deals to attract short-term savings that can be withdrawn without penalty at a moment's notice.

"This explains why there are still some great deals on offer in regular savings and fixed term bonds. Anyone who has some cash set aside could benefit significantly."

The MoneyExpert.com analysis shows there are now 1,501 instant access savings products on the market. However the financial comparison website is warning consumers with instant access accounts to watch their rates carefully, as they can fluctuate. Currently some 299 accounts pay less than two per cent interest.

And according to MoneyExpert.com's authoritative Switching Index, as many as 2.2 million people swap savings accounts every six months.

Sean Gardner added: "Having instant access to your cash is a genuine benefit but for many savers it means you have to watch the interest rate set by your bank carefully.

"With around one in eight instant access savings accounts paying under two per cent interest, if you don't keep an eye out the banks will take full advantage.

"Thankfully it's free to switch accounts so if you're in any doubt, compare other offers and see if you can get a better deal elsewhere. It's a saver's market so don't accept a bad rate."