High time savers reap rewards of interest rate rises

NEWS that the Bank of England is to raise its base rate by 0.25 per cent to 4.25 per cent was reported yesterday in the usual solemn tones. It will cost homeowners more, we were told. Businesses will find it a struggle.

- Ross Clark

Sonja Laud, chief investment officer at Legal & General went so far as to warn that more banks could fail as a result of rising rates.

I have every sympathy with people buying a property with a mortgage whose repayments will rise. I don't underestimate the effect on businesses, either.

And, of course, any further banking collapse would be a very serious event - although I wouldn't feel the least sympathy for the directors.

Anyone running a bank on the presumption rates will never rise above four per cent deserves to lose their shirt and pension and share options.

But when we hear a rise in interest rates reported as bad news, shouldn't we be asking: bad news for whom?

There is another group of people for whom a hike in rates brings good news - or at least a little relief savers, the forgotten victims of the era of ultralow interest rates that is now coming to an abrupt end.

FOR YEARS they have put up with derisory rates of interest on their savings. When inflation was rock bottom, this didn't matter so much. But with inflation at 10.4 per cent, savers are being impoverished at remarkable speed.

The best savings rate on offer yesterday for an instant access account was 3.4 per cent - a full seven per cent below inflation.