Egg rate falls below 6% as losses mount

Egg, the savings account that has reeled in ?5bn from 500,000 savers since its launch last October with the lure of market-leading interest rates, last night cut its rate below the eye-catching 6% level to 5.85%.

The cut, which comes into force next Monday, brings Egg much closer into line with rivals such as Virgin and Standard Life Bank, which have repeatedly predicted that Egg's rates were 'unsustainable'.

Egg parent group Prudential has admitted that the flood of money into the account far exceeded its predictions and says it expects losses of ?100m from the operation this year. Two weeks ago it stopped accepting new applications by phone, forcing savers to apply by internet, in a move widely interpreted as an attempt to choke off demand and stem losses.

A spokeswoman for Egg admitted that its rates were now closer to rivals', but insisted that it would remain a market leader and would stand by its guarantee to stay at least 0.5% above base rate until January 1, 2000. Current base rate is 5.25%.

Egg chief executive Mike Harris said: 'Our guarantees are evidence that our high savings rates are an integral part of Egg's products and not a launch gimmick.'

But Standard Life Bank chief executive Jim Spowart said: 'When Egg launched it was quite obvious that its rates were unsustainable. They have been overpaying and they have reached their ceiling.

'All they are trying to do now is to keep very slightly ahead of us because otherwise they are going to look very daft. Egg's big problem is that they have failed to achieve much in the other side of the balance sheet equation in mortgage lending.'

Last night's cut in the Egg savings rate is not its first. The account launched with the promise of an 8% rate until the end of the 1998, and Egg promptly cut the rate to 7.25% on the first day of 1999.