By 
A year after the Bank of England raised the official interest rate, high street banks and building societies are queuing up to water down their offers to savers.
In the last six months, many big banks have cut back their current account and savings deals, leaving customers worse off. None have raised interest rates.
Last week Nationwide announced it would cut the interest rate on its FlexPlus packaged account from 3pc to 0pc in November.
This month TSB cut the rate it pays on its market-leading Classic Plus current account from 5pc to 3pc. Last month Tesco Bank slashed the interest rate on its current account from 3pc to 1pc.
In April Nationwide also closed its Flexclusive online saving account, which paid 5pc interest on deposits of up to £250 a month, to new customers. The account was a bolt-on to the lender’s FlexOne, FlexStudent, FlexGraduate, FlexDirect and FlexPlus current accounts.
From October Lloyds will lower the interest rate on its Club Lloyds current account, which now pays 1.5pc on up to £5,000. The changes will mean it pays 1pc on balances up to £4,000, then 2pc on deposits between £4,001 and £5,000.
The same changes will apply to Bank of Scotland’s Vantage account, as the bank is part of Lloyds.
A Nationwide spokesman said: “Currently the cost to operate FlexPlus is exceeding the income generated, meaning it’s become unsustainable. This is a direct result of rising insurance costs and has led us to make changes.”
Banks have also lost their appetite to encourage customers to sign up. There is also only one bank that is offering a current account switching deal: First Direct. The firm will pay switchers £50.
Big banks are getting away with paying lower rates because they rely on consumer apathy towards switching to smaller and lesser-known rivals that pay better rates.
Many savers earn no interest at all. Deposits in accounts paying nothing have risen 70pc from £100bn in December 2010 to £170bn today, according to research by the Centre for Economics and Business Research (CEBR), a think tank.
The larger banks also have a practical advantage over smaller ones, as they have a physical presence in more places due to having more branches. This is reflected in interest rates, as smaller firms tend to pay savers more.
Anna Bowes, of money experts Savings Champion, said: “Why is it happening? Big banks have simply had the opportunity to, if I’m honest. New banks are coming in people have not heard of, they don’t want to take the leap so they stay with the big banks.”
Last August the Bank of England increased Bank rate from 0.5pc to 0.75pc. However, only 49pc of savings accounts with big banks pay interest that beats Bank rate. Meanwhile, inflation is running at around 2pc.
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Despite Nationwide’s cuts, building societies remain a more lucrative option for savers in terms of interest rates. Savings Champion research found that 68pc of building societies pay interest on accounts above the level of Bank rate.
If savers want to keep cash close at hand but earn decent interest too, Cynergy Bank, Marcus and Virgin Money have easy-access accounts that pay a rate of 1.5pc.
These allow quick withdrawals to current accounts, though Virgin only allows two of these a year.
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