Your Money: Societies want rise in rates

THE vast majority of savers are basic-rate taxpayers who have been poorly served by National Savings in the past.

National Savings, which has always offered a good deal to higher-rate taxpayers, launched the Capital Bond to attract non-taxpayers.

Now, for the first time, it has laid out a special offering for basic-rate taxpayers: the First Option Bond paying 7.75 per cent net. And, to huge surprise, it seems rather popular.

The First Option Bond has taken pounds 112m in its first 10 days on sale - an average of just over pounds 11m a day. But it took pounds 26m last Thursday, so the signs are that sales are gathering momentum.

By comparison, Capital Bonds raised pounds 65.5m in their first month on sale. Building societies have been moaning for some time that National Savings was presenting unfair competition in the savings market.

The Government can offer any rates of interest it likes to attract savers' cash, without having to worry about balancing the books. But building societies have to weigh up the rates offered to savers with the corresponding rate charged to borrowers.

For some time, they have been worried about both ends of the see-saw. Savers have not been flooding through the doors; they have been happier to use any spare cash to repay debts.

Indeed, many borrowers on annual review were offered the chance to reduce their monthly payments but elected to keep paying the higher existing amounts.

And, of course, National Savings has been uncomfortably competitive.

While the low mortgage rates have proved unable to revitalise the housing market in the face of worries over unemployment, owners with debts larger than the value of their homes and general economic doom and gloom.

At least any action societies take on the savings side to boost rates can have a direct effect on their balance sheets, while the action to keep rates down has not been effective on the mortgage front.

So against this background it is not surprising that building societies are keen to see a rise in rates, and at least repair the damage on the savings front exacerbated by the National Savings Bond.

Cheltenham & Gloucester Building Society raised its mortgage rate from 10.75 to 10.99 per cent on Friday and blamed the move squarely on National Savings.

C&G has always appealed to larger savers by offering extremely keen investment rates, and it is determined not to lose that position. So the borrowers have to pay the price. Other lenders, such as the Abbey National and Nationwide, say they have no immediate plans to raise rates.

But that's the way to bet.

SMALL savers with the Halifax Building Society have just 10 days to close their accounts if they want to avoid the new charges for accounts which do not match up to the big time.

The Halifax, Britain's largest building society with nearly 14 million savings accounts, announced last January that it would be charging pounds 2.50 a quarter on all accounts that dipped under pounds 50 for 30 days or more during a quarter.

On top of this, accounts with less than pounds 250 will be charged 60p for cash and pounds 1 for cheques after the first two withdrawals in a month.

The end of the first charging quarter is 31 July. Any accounts that are closed before that date will escape the charges. But some mischievous savers have decided to play games with the society as an impotent form of revenge.

Ted Harrison, a Halifax saver from Sittingbourne, Kent, has decided to leave just 1p in his account. He describes this as 'a small act of revenge which will incur the society a few more months of disproportionate costs'.

The Halifax says that if there is not enough in accounts to bear the pounds 2.50 charge, letters will be dispatched inviting customers to boost their savings.

If there is no reply, the account will be closed after 14 days - and the Halifax will write off the difference.

Mr Harrison points out that people who have moved and not notified the society of their new address - because their account is effectively dormant with a small sum stashed away - may never have received the original letter, and will have pounds 2.50 a quarter taken out of their account until all the money is gone.

It all seems rather out of character for a building society, which is in the mass market and whose only purpose is to serve savers and borrowers as it has no shareholders to consider.