THE EBS Building Society is to pay its savers more interest and to cut the cost of mortgages in a move likely to increase competition in the market.
Small savers with passbooks will get an extra half of a percentage point in interest payments, while the cost of a mortgage will fall by 11p per month for every £1,000 borrowed.
The increases for savers come at a time when the return available on small savings is very low. Most banks and building societies are offering rates of between 0.25 and 0.50 per cent on demand accounts of £1,000 to £5,000.
From March 1st the EBS will pay interest of 1 per cent on demand savings of £1,000 to £3,000 and 1.25 per cent for savings of £3,000 to £5,000. Annual interest on a £2,000 deposit will increase from £10 to £20.
About 300,000 accounts containing £400 million to £500 million will benefit. Because some customers operate a number of accounts the society was unable to say how many would benefit.
But 45,000 mortgage holders will have lower monthly repayments from May 1st when EBS changes the way it calculates its interest charges. It is changing from calculating interest on an annual basis, which gives no credit for capital repayments made during the year, to a monthly basis.
This means that mortgage holders will get the benefit of repayments made each month when the interest charge on the balance of their loan is being calculated.
So their interest bills will fall because the charge will be based on a declining loan balance. A number of institutions already calculate interest on a daily or monthly basis.
Aimed at showing members the benefits of belonging to a mutual society, the move is expected to cost the EBS about £5 million this year.