A New Savings War!

Interest rates have gone up, but it's not all bad news - especially as some savings accounts have boosted their rates already.

If you're a homeowner with a variable rate mortgage, you will no doubt be lamenting yesterday's decision by the Bank of England to raise interest rates. The 0.25% rise means that UK interest rates are now set at 5%, the highest they have been for five years, and will certainly result in an increase in repayments for some borrowers and mortgage holders.

However, before we get too caught up in the down side of the rate rise, we should remember that this is very good news for some - all of us savers! Savings accounts are usually linked in some way to the base rate, and so any increase will lead to a rise in interest rates for your savings, too.

Unfortunately, many providers have been known to be a bit sneaky where this is concerned - increasing borrowing rates promptly but taking their time with savings rates, so they benefit, but you don't.

However, I'm pleased to report that this doesn't appear to always be the case as a number of providers have actually increased their savings rates in line with the base rate, already! All ICICI HiSAVE, and Icesave account holders will find their cash is now earning a fantastic 5.45%AER (an increase of 0.3% for the ICICI customers and 0.25% for Icesave). And if you have a National Savings & Investments (NS&I) Direct ISA, your money is now earning a tax-free 5.55%AER!

So why have these accounts holders benefited so quickly? Well, each of these accounts is linked to the base rate, but importantly, also guarantee that their interest rate will be a certain level above it. The ICICI HiSAVE account promises its rate will be at least 0.25% above base rate until December 2007 (for savings of £1+) and the Icesave account the same until October 2009 (for savings of £250+). And the NS&I Direct ISA rate is guaranteed to be 0.55% above base rate until at least 5 April 2008. And whilst other accounts out there also offer guarantees but have yet to raise their rates, the ICICI and Icesave accounts in particular have both attracted praise by offering straightforward accounts, with no strings, introductory bonuses or penalties for withdrawing cash.

So apart from interest rates, it's clearly also worth checking the details of the accounts you're interested in to see if there are any guarantees linked to the base rate, as this could mean you will benefit from any future rises more quickly. With a number of people predicting a further rate rise in the New Year, stashing your cash into one of these accounts now could prove prudent. But as always, you need to take everything into consideration - after all, a poor guaranteed rate is still a poor rate. But let's hope this is a taste of things to come with other providers boosting their rates in the next few days/weeks. Let the savings war begin!

If you need a better home for your money, why not compare savings accounts and apply online at the Fool?