What's happened?
When the Icelandic banks collapsed last October the Dutch bank ING bought the savings book of Kaupthing Edge, the UK internet savings arm of Kaupthing Singer & Friedlander.
At the time, Kaupthing Edge savers were receiving an interest rate of 1.55% above Bank rate - 6.55%. They have continued to be paid a rate with the same margin to the base rate although it has obviously fallen in recent months following the Bank of England's interest rate cuts. Customers are currently receiving a rate of 3.05% (although this doesn't reflect February's half-point interest rate reduction).
However, in the last few days former Kaupthing savers have been contacted by ING Direct notifying them of changes to their account and setting out two options. The reason for this is that their accounts have not been transferred on to ING's computer systems giving the Dutch bank more control over pricing.
So, what are the options?
One of the choices is that savers move on to a lower rate of 1.98% gross (which is the standard rate ING Direct pays on its Direct Savings Account) but receive a guarantee that the rate will be at least 0.3 points above Bank rate until 2012 - this is the same guarantee that Kaupthing Edge offered.
Alternatively, they can give up the rate guarantee in return for a higher short-term rate of 4.0%. This includes a six-month bonus of 2.02%, after which the rate will switch to ING's standard rate.
It's worth noting however, that ING has yet to respond to this month's interest rate cuts, so regardless of which option you go for, the rate could fall in the coming weeks.
Is one option better than the other?
Whether you decide to take the higher rate or the longer term guarantee will depend on your willingness to keep moving your savings around. If you want to chase the highest return then the 4% offer is more appealing but if you don't want the hassle of switching your savings from one account to another you may decide that it's worth sacrificing some interest in return for the rate guarantee.
Kevin Mountford, head of banking at moneysupermarket, said: "It is no surprise that former Kaupthing Edge customers now face this decision as the rate paid by Kaupthing didn't fit in with today's market. Nevertheless it will prove a rude awakening to many of the collapsed Icelandic bank's former customers. That said, many of these people are active savers who seek out the best rates and if you are prepared to keep moving your money, the 4.0% option isn't bad when you look at what else is available.
"With interest rates so low people will have to be much more vigilant and get what they can, when they can."
Go to our savings channel to compare more savings rates.
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