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UK banks increase savings rates to fund mortgages

Over the last few weeks there has been a significant increase in savings rates across UK with banks and building societies all very keen to secure finance for the future. By increasing savings rates to around 5%, a full 4.5% higher than the UK base rate, they are then able to charge in excess of 5.5% for mortgage arrangements and take the difference as their profit.

It is no surprise that we have seen a spate of fixed-rate savings bond deals, many of which are weighted towards the end of the period when bonus payments are made. This will ensure that the vast majority of savers will actually retain their funds with the banks or building societies in question in order to obtain their bonus at the end. Those who leave early will not only lose out on the bonus payment but will effectively have financed UK mortgage companies (i.e. banks and building societies) with cheap credit.

If you see a deal which looks too good to be true then you really do need to take advice and do your homework. There are many factors to look out for including bonus payments at the end of a fixed-rate period, penalties for early withdrawal, minimum deposit figures and other similar criteria which can change the overall look and feel of any "good deal".

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