News about savings and banking interest rates

Savings interest rates have reduced across the market in recent months. Regrettably, it has been necessary for us to adjust some of our savings and banking interest rates with effect from 9th August 2002.

As a building society, we are committed to offering members long-term good value and believe that we are best placed to achieve this, as we do not have to generate levels of profit sufficient to satisfy external shareholders.

Although we have had to reduce our interest rates, many other organisations have already cut their savings rates more aggressively this year. Some examples of the reductions made by other organisations this year are shown below.

Following the reductions we have made, our accounts continue to offer competitive rates of interest. Details of our new interest rates.

Why has Nationwide reduced its Savings and Banking interest rates?

We haven't reduced our rates since December 2001, following the last base rate change, and have been very reluctant to do so now. However, we have had to respond to a series of exceptional circumstances. The volatility of the equity markets this year and the fall of the FTSE by 18.5% in the first 6 months of the year has resulted in an exceptional inflow of savings into non-equity based accounts. During the same time, most of our competitors, including Halifax, Abbey National, Barclays, Egg, Northern Rock and IF have cut their savings rates, whilst ours remained the same. These two factors resulted in substantial inflows of savings being deposited with Nationwide. By cutting some of our rates at this time we are able to manage the inflows of business.

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Are the interest rates on all savings accounts reduced?

No, over half of our accounts held by members remain unchanged. For example CashBuilder and CapitalBuilder aren't changed and only those InvestDirect and 60 Day Direct accounts with more than £10,000 and Bonus 60 with more than £100,000 in them will be affected. This means that nearly 8 million accounts are unaffected by these changes.

Are savers having to pay for reductions in your mortgage rates?

We are not reducing our Base Mortgage Rate at this time. The reductions in our savings rates follow similar changes by our competitors and come at a time when we are attracting substantial levels of savings into the business. The reductions in some of our savings interest rates will help to manage the inflows of business.

Why have you waited until after the AGM to announce these changes?

Despite the substantial inflows mentioned earlier, we wanted to see if The Bank of England's Monetary Policy Committee would announce a change in the base rate in their announcement on 1 August, before we made a decision on savings rates. The timing of the AGM was not a decisive factor.

Are these reductions related to the decision to backdate Base Mortgage Rates?

No, the cost of transferring mortgages linked to SVR on to BMR was met, in full, from last year's profits. Our philosophy on savings rates is to provide our members with a range of competitive accounts offering great long-term value. Our decision to reduce rates at this time took into account competitors' interest rates following their reductions and the higher than planned amount of money that was being invested with us.

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We rely on income from our savings. What are we to do?

It is always disappointing when savings rates are reduced and, at a time when rates across the market are particularly low, now may be a good time to review your situation. At Nationwide we offer a range of savings and investment products that may be more suitable for you than the accounts that you currently hold.

If you wish to find out more, the team at your local branch, or one of our financial consultants, will be happy to advise you further.

Why should I support Nationwide remaining as a mutual organisation when you cut rates?

Despite the recent reductions in our savings interest rates, we continue to offer competitive returns, as comparisons with our competitors demonstrate. We must, however, manage the needs of the business in the short term to allow members to benefit from our building society status in the long term.

At Nationwide we have returned over £1.9 billion to members over the last six years in the form of improvements to products and services. We are only able to do this because we are a building society and, unlike the banks, don't have shareholders to pay dividends to.

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Will the return on my savings continue to fall?

We currently have no plans to reduce savings interest rates further. However, we will continue to review all of our interest rates and monitor any changes in the market.

Why are the rate reductions focused on the higher rates?

We have evaluated both our competitors' rates of interest and the accounts and tiers where the largest volume of money has been deposited. The changes have been made to allow us to manage the inflow of savings, whilst maintaining our competitive position by offering good rates of interest on all our accounts.

How are you telling members about the new savings rates?

When we change savings interest rates, we always publicise the new rates on posters and leaflets displayed in all our branches, we also publish the details in major national and regional newspapers. Details of the new rates are available here on the web site or by phoning our interest rate line on 08457 30 20 10.

As we are changing savings rates outside of a base rate change, we are also writing to all members with an affected account to advise them of the changes. This is part of our commitment to keep members informed and exceeds the Banking Code requirements.

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