The banks and building societies cutting savings rates by more than 0.25%

First Direct and Tesco Bank among the first major providers to cut savings rates by more than 0.25% – and others could follow suit.

First Direct, Tesco Bank and numerous smaller savings providers have already announced plans to cut savings rates by more than expected after last week’s 0.25% reduction in Base Rate.

On Thursday 4 August, the Bank of England voted to cut the Base Rate to 0.25% in order to help shore up the economy as the UK prepares to Brexit.

This was the first change to Base Rate in over seven years and meant providers of mortgages and savings needed to conduct some urgent product reviews.

When Base Rate is cut, providers will try rebalance their books by adjusting what they pay to savers and what they charge borrowers in interest.

While many were quick to passing on the 0.25% cut to borrowers in the form of mortgage and loan rate reductions, savings providers have been slower to make changes.

First Direct was the first major provider to make a reduction on its range of savings products, but has shocked customers with some cuts that are much more than the 0.25% they were expecting.

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Slashing rates

[SPOTLIGHT] First Direct has written to customers telling them that their savings would be hit by cuts greater than the 0.25% cut announced by the Bank of England.

The online bank, which is owned by HSBC, is slashing the rate on its cash ISA from 1.3% to 0.9% - a 0.4% drop, while the rate on its bonus savings account will be slashed from 0.75% to 0.4% - a 0.35% fall.

Other accounts in First Direct’s range will be cut by 0.25%.

In a weekend email to customers, First Direct claimed its rates would remain competitive: “We know this isn’t great news for savers, but even though our savings rates are not directly linked to the base rate, we’ve taken this time to review our savings accounts.”

Three days later Tesco Bank got in on the act, announcing it will cut the rates on its internet saver and instant access savings accounts by 0.35% as of November.

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Excuse to decimate savings?

Some smaller providers have also made bigger cuts than expected. The table below sets out the providers that have also made cuts bigger than 0.25% since August 1 up to August 9 after the Base Rate decision.

Source: Moneyfacts correct up to 09/08/2016

While some providers have pledged not to hit savers with more than 0.25% including Santander and Nationwide there are fears that other providers will use the change to Base Rate as an excuse to decimate savings rates further than the lows they’re already at.

Don't accept a lower rate: compare savings accounts with loveMONEY

How to get the best rates on your savings

Unfortunately, the outlook for savers is bleak. With talk of further cuts to Base Rate, the returns on savings could fall even further.

Some are even forecasting a situation of negative interest rates, where you will have to pay the bank to hold your savings rather than the other way round!

If you do have savings, you should act now to protect them.

You can try to beat the inevitable slide of savings rates by locking into fixed-rate bonds and Cash ISAs over the short term.

If you need easy access to your cash you could try a current account.

The Nationwide FlexDirect account pays 5% on balances up to £2,500 for 12 months, TSB offers the same rate on balances up to £2,000 with no time limit with its Classic Plus account.

Meanwhile the Santander 123 Current Account offers 3% on balances from £3,000 up to £20,000.

For more on the best home for your cash read where to earn most interest on your cash.

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