Did you spot the smoke and mirrors trick that Santander pulled off last week? SYLVIA MORRIS explains

By Liam On Mar 20, 2024

We got a nasty shock last week when Santander announced a huge 20 percent cut on one of its highest savings rates.

The bank, which has more than 14 million customers, said it was acting proactively as it expected the Bank of England base rate to fall in the coming months.

A few days after the announcement of the shock cut, the country raised mortgage rates. Let’s hope others don’t follow suit and cut their savings rates, especially given that the base rate has yet to fall from the current level of 5.25 percent.

I fear that all the good progress made by the powerful Treasury Committee last year in pressuring big banks to reward savers with slightly higher interest rates could be undone very quickly.

This morning the same committee will again question the bosses of Barclays, Lloyds, NatWest and Santander about whether they are giving customers a fair deal.

Good sleight of hand: Santander, which has more than 14 million customers, said it acted proactively by cutting one of its highest savings rates by as much as 20%

But don’t expect much to improve on these standard, easy-to-access accounts. Banks have adjusted them slightly since the initial grilling, but they still only pay 1.2 percent.

Santander’s surprise rate cut last week should be a sharp reminder that we need to keep a close eye on the interest we earn on our savings.

There are plenty of us who don’t, according to recent research from Shawbrook. Scrolling through the recently published report and last year’s accounts of the major banks provides a worrying reminder of how important this is.

Lloyds, NatWest, Santander, Barclays and HSBC made billions of extra pounds last year from our complacent tendencies. Bankers enjoyed record profits, most of which they withheld from savers.

They increased their net interest margins – the difference between the amount they pay to savers and what they charge to borrowers – and gave their savers as few extras as possible in their standard easy-access accounts.

The Bank of England’s monetary policy committee will meet tomorrow to vote on the base rate.

Economists have told me they expect interest rates to remain at 5.25 percent, with the cuts coming later.

The base interest rate is expected to decline gradually and reach 4.2 percent by the end of the year.

But that hasn’t stopped Santander from prematurely discontinuing its Easy Access Saver Limited Edition 3.

It is a huge reduction from 5.2 percent to 4.2 percent from mid-May. The bank launched the account in September 2023 in a ‘snatch and run’ ploy.

Trusted number-crunchers told me the bank raked in billions of pounds when the account was on sale for just eight days, putting it at the top of the best buy rankings.

Savers are turning to fixed-rate Isas

Savers are finally jumping on the Isa money bandwagon to avoid paying tax on their interest. Any interest you earn on these accounts is tax-free.

Analysis from Paragon Bank shows that fixed rate Isas were at the top of our shopping list.

One-year fixed-rate accounts are by far the most popular option. The best account a year ago was that of Santander, with 4.15 percent. Now the top rates are just over 5 percent.

Kent Reliance and OakNorth pay 5.07 per cent, while one cluster – Paragon, Close Brothers, Castle Trust, Aldermore and Charter Savings Bank – is 5.05 per cent.

The bank says the recent reduction is due to current market conditions.

Santander’s move is in stark contrast to how slowly the big banks reacted when base rates started rising just over three years ago. It took them four months to pass on the increase to savers.

High street banks have increased their deals on fixed rate bonds, but are still far behind the newer banks, where a host country pays more than 5 percent for a year.

Barclays is the best of a bad bunch at 4.65 per cent, while Santander pays just 4.1 per cent and Halifax 4.15 per cent.

They also give better nominal rates on some of their variable rate accounts.

But usually they only pay for it for a year. For example, the nominal rate of Santander Easy Access Saver Limited Edition 3 drops to just 1.2 percent after 12 months when your money is transferred from the account to the Everyday Saver.

New MBNA account pays a top5.27%

MBNA last week launched a top-paying one-year fixed-rate bond at 5.27 percent.

It’s an online account, but you can only manage it with an old-fashioned phone call.

You must do this if you need to update your information.

MBNA is part of Lloyds Banking Group. The banks share a license under the Financial Services Compensation Scheme.

This means that only one lot of € 85,000 is covered by the scheme on the money you have with both banks.

Halifax Bonus Saver pays 4.1 per cent, but only for one year, and to those who make three or fewer withdrawals during that time.

After 12 months you’re in the Instant Saver with a crappy rate between 1.45 percent and 1.8 percent.

These ‘go-to’ rates look particularly pathetic when you compare them to their rivals, which pay more than 5 per cent, with Charter Savings Bank’s top rate being 5.08 per cent.

The average percentage, says data controller Moneyfacts, is 3.18 percent.

Easily accessible cash Isa rates from the big banks are just as bad. One of the worst is 1.16 percent from Barclays.

The Santander Isa Saver at 1.2 per cent and Lloyds Bank at 1.4 per cent are also terrible if you can earn more than 5 per cent with other providers such as Chip (5.1 per cent), Zopa (5.08 per cent), Charter Savings Bank (5.03 percent), and Harpenden Building Society and Kent Reliance, both at 5.01 percent. The average rate is 3.32 percent.

Sy.morris@dailymail.co.uk

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