Savers may have to wait for interest rate rise to be applied

Earlier this week the Bank of England raised interest rates for the fourth time in nine months, taking the rate to 5.5%. This rise came as no surprise to analysts and mortgage payers, as it had been widely predicted. Those paying mortgages will now have to make increased repayments if they are on variable rates, and lenders will be quick to ensure that the increased rate of interest is quickly applied to borrowing. However, what about those with savings accounts?

It is a known fact that banks and building societies are largely far slower at applying any increases in interest rates to savings than they are at applying them to borrowing. Instant application of increased interest rates on borrowing means that consumers end up making higher repayments on variable rate loans and mortgages, which enables lenders to rake in the profits. And these profits are further boosted by banks and building societies delaying interest rate rises on savings – or avoiding them altogether in the hope that savers will be too apathetic to take action.

Kevin Mountford, head of savings and current accounts at moneysupermarket.com stated: 'It takes providers an average of 20 days to pass on an interest rate rise. With each half per cent rise bringing in £12m per day in interest it's easy to see why providers delay. If the reason for the average 20-day delay is operational then banks and building societies should backdate the rise.'

Even in cases where the interest rate rise is applied to savings, many savers may have to wait until June or even later before they see the interest rate on their savings go up, and for those with a lot of money in a savings account this could add up to hundreds of pounds in lost interest each year.