Nearly half of all UK savings accounts pay interest rates of 0.5%, new research by financial information service Moneyfacts reveals.

Of these accounts, nearly half pay 0.1% or less, as many providers have made dramatic rate cuts in recent months. Moneyfacts reported that one in 10 savings accounts have cut their savings rates since last March, although 3.5% increased rates.

Today the Bank of England kept the official Bank rate at 5% for the eighth month in a row.

Michelle Slade of Moneyfacts suggested that interest is very low on some savings accounts because banks chose to cut their rates ahead of new rules stipulating that providers must give two months’ notice before they cut interest rates.

“It is savers, such as pensioners, who rely on the income from their savings to supplement their income who end up worse off,” she said.

“Savers will be asking how providers can justify cutting rates further, when the bank base rate has remained on hold.”

However, the drop in interest rates has proved favourable to those with home loans, especially the 58% of existing mortgage holders who are on variable rate deals.

Figures from the Council of Mortgage Lenders show that the average outstanding mortgage rate was 3.53% in September, compared with 5.81% a year earlier. The average monthly payment on a £110,000 repayment mortgage at 3.58% was £561, while an interest-only mortgage at the same rate of interest required a monthly payment of £328.

A year ago the costs were far higher. At an interest rate of 5.81%, a house of the same value would cost £704 a month on a repayment mortgage, and £533 on an interest-only mortgage.

Last month the CML reported that 100,000 extra people each month were benefitting from a drop in their mortgage repayments.

This entry was posted on Friday, November 6th, 2009 at 9:31 am and is filed under Housing Market, Loans, Mortgages, Savings. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.