Penny drops on crafty cut

Several leading banks were this week accused of using the festive period to bury bad news about cuts to their savings rates. The Halifax, Bank of Scotland, First Direct and the Woolwich this week cut interest rates on a total of 12 accounts, despite the fact that the Bank of England's base rate has stayed unchanged for more than a year.

It means some people who have moved their money into safe savings accounts after seeing their investments take a pounding as a result of stock market falls, have effectively been clobbered twice.

One of the First Direct accounts will now pay savers who have less than £3,000 invested, the grand total of zero interest - down from 1.24% gross before the start of this week.

It's a reminder, if one were needed, that people need to keep a close eye on the rate they are getting and be prepared to move their cash to a better-paying account if they are not getting a good deal. Financial experts say making your savings work harder should be one of everyone's new year's financial resolutions.

On Monday, phone and internet bank First Direct cut the rate it pays to its 330,000 savings account customers by between 0.19% and 0.29%. Someone with less than £5,000 stashed away has seen their rate fall from 2.96% gross to 2.67%.

Meanwhile, most of First Direct's Bonus Savings Account savers have seen their rates cut by between 0.15% and 0.39%, but the unlucky few with less than £3,000 in the account, who until Monday were getting 1.24% gross, have had their rate cut to 0%.

The Halifax has cut rates on three accounts - Instant Saver, 60 Day Gold and Saver Reward - by 0.15% in most cases. So, the new Instant Saver rate for someone with £500 to £4,999 saved is 2.05% (down from 2.2%), while for £5,000-£9,999 it is 2.15% (was 2.3%), for £10,000-£24,999 it is 2.25% (was 2.4%), and for £25,000-plus it is 2.35% (was 2.5%).

The reductions took effect on Thursday. The 60 Day Gold and Saver Reward accounts now pay a maximum of 2.95% and 2.35% respectively.

However, the Halifax has upped the interest it pays to savers holding three of its fixed rate products (Guaranteed Reserve, Web Saver and the fixed rate Isa), and has just increased the rate on its current account from 2% to 3%.

Bank of Scotland has cut rates on six accounts: its mini cash Isa, Tessa-only Isa, 30-day notice account, 90-day notice account, Premier Bonus account and graduate savings account. The cuts range from 0.1% to 0.4%. Worst-hit are graduate savings account-holders who see what they receive fall from 3.15% to 2.76%.

The reductions took effect on Wednesday.

The Woolwich has reduced the amount it pays its Isa savers with less than £12,000 invested. Its rate will fall to between 3.6% or 3.95% depending on the balance.

The Consumers' Association was scathing about the banks' timing in choosing now to cut rates. "This is yet another example of big-name banks taking advantage of their customers," says a spokeswoman. "They have cynically slid the changes out while everyone is busy with Christmas, hoping their customers won't notice."

Savers don't need to put up with being treated like this, adds the CA - there are still banks and building societies offering good rates of 4%-plus. "If yours isn't, don't hesitate to move your money," says the spokeswoman.

Cuts to savings rates are particularly bad news for the many elderly people relying on their nest egg cash for income. Some of them will have pulled their money out of the stock market and gone into cash, only to watch their returns shrivel.

Financial data provider Moneyfacts monitors savings rate changes and says this week's moves are, unfortunately, part of a trend. "We are seeing more and more variable rates being cut without the Bank of England base rate changing. We've seen that over the past few months," says Melanie Stewart at Moneyfacts.

Cash Isa rates, in particular, have been hit. Another bank which recently dropped its Isa rate was Alliance & Leicester, which now pays 4%, down from 4.15% previously.

Part of the reason why this may be happening is that with large volumes of cash flooding into savings that would normally have gone into other forms of investment, some institutions are using interest rates to try to control the flow and prevent themselves being swamped. That may not cut much ice with their battered customers, though.

Moneyfacts says its advice to people is to stay vigilant, keep moving your money around to get the best possible rate, and make use of your Isa allowance.

However the banks reject any suggestions that they have sneaked out their rate cuts under cover of Christmas and the new year.

First Direct says it didn't want to cut its savings rates before Christmas, "so this is a new year change. We advise our customers individually about rate changes and we are doing this now".

First Direct was also at pains to point out it has increased its savings rates throughout 2002, adding: "Customers can still earn better rates than they did six or 12 months ago, despite base rates not having moved."

It says it is writing to the 100 or so Bonus Savings Account customers with less than £3,000 stashed away to advise them to either increase their balance or move their cash to the better-paying Savings Account.

The Halifax says: "We took out ads in the papers on December 21. And one of the accounts has been increased." The bank adds that its rate cuts are "a reflection of the market in general," pointing out that rates on cash Isas and some traditional branch-based accounts have been coming down generally.

It has softened the blow slightly by bringing in new interest rate guarantees for five accounts: Web Saver, Monthly Saver, Save4it, Extra Income Saver and Premium Savings Direct.

However in the case of the last two of these, only people with very large sums saved will benefit from these.