The base rate was slashed by 1.5 percentage points to 3%. This is the largest single cut it has made since it was made independent from the Treasury in 1997,  and the rate is now at its lowest since the early 1950s.

The cut is an attempt to stave off recession and a response to pressure from business and unions to help out struggling businesses and homeowners.

However, it looks unlikely that the cuts will be passed on in full by the banks and building societies to borrowers. The director general of the Building Societies Association, Adrian Coles, said, “This reduction in the bank rate will provide some support to the housing market and especially borrowers on tracker rates. However, borrowers looking for new fixed rate deals or homeowners with mortgages linked to money market rates will not necessarily find their mortgage rate decreasing”.

He went on to say that there were several reasons that the cuts may not be passed on in full. These included the need to keep savings rates high, competition in the mortgage market and the need to finance the government rescues of Northern Rock and Bradford and Bingley.

Round 22,000 Heritable Bank accounts will be taken over, worth £580m, after the bank’s parent company Landsbanki was placed into administration and accounts frozen along with sister bank Iceave.

ING will also acquire Kaupthing Edge, the UK internet-only operation of Iceland’s largest bank, which accounts for around £2.5bn of deposits by 160,000 UK savers.

ING Direct already has over 1m customers in the UK and parent company ING Group has worldwide assets of over £1 trillion while enjoying one of the most solid credit ratings in the financial services industry. As a Dutch-owned bank, it operates under the Dutch Investor Compensation Scheme which protects the first EU100,000 of deposits for each customer.

Although Icesave’s depositors should be covered up to EU20,000 under the Icelandic government’s compensation scheme, the cupboard is apparently bare and it was confirmed last night that this obligation was not going to be met.

The Chancellor said that the exceptional circumstances meant it was appropriate for the UK government to guarantee 100% of British Icesave deposits, even above the £50k provided for under the Financial Services Compensation Scheme.

A statement will be made in the commons later today, but the Prime Minister has said that legal action will be taken against the Icelandic authorities to recover the money paid out to its customers.

Icesave has suspended withdrawals and deposits, meaning UK customers’ funds are effectively frozen. Compensation will need to be claimed to recover deposits, with the first £16,300 per depositor covered by Iceland’s compensation scheme, and the remainder up to £50,000 able to be claimed under the UK’s Financial Services Compensation Scheme. It’s not yet clear whether two seperate claims will need to be made, nor how long the process will take.

This shows the determination of the government that the deal they’ve helped broker will go through, relieving speculator pressure on HBOS which has seen its shares plummet in value. Whether the deal serves to calm trader’s nerves, or they simply turn their attentions to a new ‘victim’, remains to be seen.

A&L has been subject to persistent rumours about it’s exposure to bad debt in the current credit crunch crisis, and has seen profits fall by 30% over the last year. Abbey too has been hit by the credit squeeze, and has reduced the number of mortgages it offers. The merger, say analysts, is likely to create a stronger and more profitable bank, and also shows that the Spanish owners have confidence in the long term future of the UK housing market.

As far as banking is concerned, savers may be the main beneficiaries, as a bigger bank will have more assets and access to credit, and thus can afford to offer higher interest rates to it’s depositers.

Moneyfacts also reports that banks and building societies are cutting credit interest by more than the base rate cuts.

They go on to claim that since the 0.25% base rate cut, four of the big banks have increased the cost of borrowing by up to 3%. Authorised overdraft interest rates have been increased by Nationwide, Royal Bank of Scotland, Halifax and Natwest.

Since the start of the month, Halifax current account holders have been charged 19.5% interest on overdrafts, and increase of 0.6% on April rates. Meanwhile, Nationwide has announced a 3% increase in its rates to 12.9%.

NatWest and the Royal Bank of Scotland will increase rates on overdrafts of £5000 or more by up to 2.69% while actually reducing rates on smaller overdrafts.

10 institutions have cut credit interest paid on current accounts. Examples include Halifax, down from 6% to 5% from the start of the month, and the Nationwide Flax Account rate drops by 1.75% to 2% at the start of June. 

The bank, which is seeking £12bn in funds via a share issue, denies that the move is in any way related to the problems they face as a result of the global credit crunch.

Rather, according to a spokesperson, the intent is simply to bring ‘legacy’ accounts into line with RBS’s current product range.

Small business owners are not convinced however, with the Federation of Small Businesses saying that it was ‘totally wrong for RBS to take things out on the small and medium size enterprise sector when the bank is still making big profits’.

Although described as a savings account, it’s really more of a bond, as a single deposit is made to open the account and this then can’t be added to or withdrawn from for the length of the term - from 6 months to 3 years.

Interest rates vary from 6.5% for the 3 year bond, to the highest of 7.01% for the 1 year account.

Interest is paid at maturity for bonds of 1 year or less, or annually for the longer term accounts, although monthly interest can be chosen at a slightly lower rate.