Bank keeps savings rate on hold
February 15, 2008
Despite the 0.25% interest rate cut announced by the Bank of England earlier this week, the Icelandic online bank Kaupthing Edge has decided to keep its savings interest rates on hold at 6.5%, raising the bar for other financial institutions who are looking at lowering their savings interest rates as a result of the base rate cut.
The Icelandic bank entered the UK market earlier this year offering a headline grabbing savings rate of 6.5%, and keeping the rate static at a time when other financial institutions may be looking at reducing savings interest rates is likely to attract a lot of attention for the new player in the UK market over coming weeks.
The second highest savings account on offer at the moment is the ICICI account, with this Indian owned bank offering interest rates of 6.41%. This account has held the top spot on the best buy tables for some time, but has been beaten to the number one spot by the Kaupthing Edge account. Savers will not have to wait and see whether ICICI also decides to keep its savings interest rate on hold following the base rate cut in order to remain competitive in light if the Icelandic bank’s decision.
One industry official stated: ‘The news of a base rate drop is normally bad news for savers as providers slash the rates on their products. However, we are currently experiencing a “rate inflated” market, which may not see any direct impact from a cut. The savings market is made up by three main provider types, each of which behave in a different way. With a cut, traditional big bank brands are likely to maintain headline grabbing rates, whilst slashing saving rates on existing products.’
He added: ‘The direct providers – currently dominated by overseas players – tend to operate with lower costs and can reflect this in their rate. Given that they still need to build credibility in the market, they are likely to play fair where rate reductions are concerned. I believe the likes of ICICI, Icesave and Kaupthing, will still be at the top of the table post today.’
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