Which? has recently completed a study of the correlation between interest rate increases and increases in the rates paid on savings accounts and finds that the banks are not passing on the increased rates to consumers. 

The increase in the base rate of interest from 0.25 to 0.5% in November was the first increase by the Bank of England in 10 years. 

The banks overwhelmingly passed the 0.25% rise to mortgage borrowers, but mostly failed to do so for those in interest bearing savings accounts, with only one in five financial institutions doing so. 

The Which? study encompassed 327 savings accounts and cash ISAs, with a focus on any changes in the rates offered in the 5 weeks subsequent to the rate increase. 

According to the study, 48% of providers left savings rates unchanged, 30% increased their rate by less than the Bank of England increase and the remainder passed on the increase in full. 

In addition, the report examined 95 institutions in  instant-access savings sector and the figure was even lower, with only 10% passing on the full rate rise to all of their accounts. No accounts received the full increase for 66% of the providers.

The picture is different when mortgages are examined as 53% of lenders increased their standard variable rate after the increase. 

In terms of fixed rates, 40% increased their rates for 5 year fixes. Monmouthshire Building Society and Allied Irish Bank increased rates by the most with each increasing at least one of their offerings by 0.45%. 

Of all of the fixed rate deals examined, 75 increased by more than 0.2% and some of the cheapest deals were withdrawn. 

David Blake of Which? advisers borrowers to prepare in anticipation of a possible rate rise:

"It’s important to properly understand the impact a rate rise would have on your mortgage payments. Even if you are currently locked into a mortgage product, it’s still worth looking into re-mortgaging to a long-term fixed-rate to help protect yourself from the financial shock of future rate rises."

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