Savers kept waiting for their reward on returns

Some providers are slow to pass on rate rises, says Melanie Bien

Many homeowners will see an immediate rise in their mortgage repayments following the Bank of England's decision to increase the base rate to 4 per cent last Thursday. If only the same prompt action could be applied to all savers.

With rates having been so poor on savings accounts for the past few years, another increase so soon after November's 0.25 per cent rise in the base rate should be welcome. And for those savers whose account providers have raised rates accordingly, it is.

But this is not the case across the board. Some pro- viders, such as the Halifax, have yet to pass on the full 0.25 per cent rise from last November to all their savers. And while the majority of mortgage lenders managed to raise their standard variable rates (SVRs) by the full 0.25 per cent within minutes of the latest Bank of England announcement, most of these have delayed a decision on savings until the end of the month. Abbey is just one example: it raised its SVR by 0.25 per cent to 6 per cent straight away, but is making savers wait for the benefits. The bank says: "Full details of changes to savings rates will be announced later this month."

Even those providers that announced an increase in savings rates won't actually put them up until 1 March. Lloyds TSB is raising the rate on its Plus Account by 0.25 per cent to 4.75 per cent annual equivalent rate (AER) for new customers from next month. This is guaranteed until 1 May 2005 - but account holders qualify only if they pay in more than £2,000 a month.

Tesco Personal Finance also stated that the rate on its Instant Access Savings Account would increase by 0.25 per cent to 2.6 per cent on balances of £1, from 1 March.

Given the reluctance in some quarters to pass on the rate rise in full, savers should consider searching for a better account. Birmingham Midshires has just launched a 5 per cent fixed-rate deal for one year, with a minimum investment of £1.

It probably isn't a good idea to tie your money up for longer than a year, as many City analysts forecast further rate rises this year. And with financial markets predicting that the base rate will be at 5 per cent this time next year, there is a danger of losing out if you opt for a longer tie-in.

"It may not be wise to lock savings into long-term fixed- rate accounts now when there could be better deals just round the corner," says Stuart Glendinning, director of credit cards, savings and mortgages at moneysupermarket.com, a website that compares financial products.

Some instant-access deals stand out. ING Direct pays 4.3 per cent on its instant access savings account (see the table on the left) on balances of £1, as does Coventry building so-ciety. Cahoot and the Halifax both pay more than the base rate on balances of £1 in their online instant access accounts, as will Intelligent Finance (IF) from 20 February.

If you haven't yet used up this year's individual savings account (ISA) allowance, you can get even better returns as they are tax-free. Most are instant-access too, so there are no restrictions on withdrawals.

IF will pay 4.6 per cent on balances of £1 from 20 February. Kent Reliance building society pays 4.16 per cent, and Safeway 4.15 per cent.

Once you've got a good deal, keep an eye on the interest to ensure it remains competitive. And if your provider doesn't pass on the full increase in the base rate, dump it in favour of one that does.