Best savings rates: Will deals head higher if base rate rises?

Britain’s savers will hope for a boost in interest on offer from banks and building societies if the Bank of England ups the base rate in the coming months, as predicted. 

It is widely expected by economists and investors that a rate rise is on the horizon, with expectations of an increase from 0.1 per cent to 0.25 per cent this year and another nudge up to 0.5 per cent next year.

Savings rates have been taken to rock bottom during the pandemic with average easy-access rates paying roughly three times’ less than in March last year and average fixed rate deals still way below what they were.

Rate hate: Almost £1 trillion of Britons savings sit in easy-access accounts, much of it languishing in high street accounts paying as little as 0.01%.

The Governor of the Bank of England, Andrew Bailey, added to the speculation of an interest rate hike by saying the Bank of England ‘will have to act’ to keep a lid on inflation.

The Bank of England website says the rate ‘determines the interest rate we pay to commercial banks that hold money with us. It influences the rates those banks charge people to borrow money or pay on their savings.’ 

Although inflation dipped to 3.1 per cent in September, it is expected that it will rise to 4 per cent or even 5 per cent in the coming months prompting the Bank of England to act.

What will a base rate rise mean for savers?

Savings experts are downplaying the impact that any base rate rise is likely to have on the savings market.

James Blower, founder of The Savings Guru – who has worked on setting rates at a number of newer challenger banks – said: ‘I really don’t think a base rate increase will help savers much.

‘What we have seen, since the financial crisis, is that base rate changes and interest rates on savings are no longer aligned.

‘Previously, they flowed in a similar direction but they’ve long since decoupled from each other.’

Kevin Mountford, co-founder of savings platform Raisin – and co-founder of MoneySupermarket – likewise, believes it will need more than just a marginal base rate rise to have any impact on the savings market.

He said: ‘I do not see major changes unless of course the base rate increases considerably to say 0.75 per cent, but this degree of change seems unlikely in the short term.’

Almost £1 trillion of Britons savings sit in easy access accounts, much of it languishing in high street accounts paying as little as 0.01 per cent.

The governor of the Bank of England, Andrew Bailey, added to the speculation of an interest rate hike by saying the Bank of England 'will have to act' to keep a lid on inflation.

The governor of the Bank of England, Andrew Bailey, added to the speculation of an interest rate hike by saying the Bank of England ‘will have to act’ to keep a lid on inflation.

Susan Hannums, co-founder of the Savings Champion – a website that keeps a firm eye on rates – believes that savers should not be idly allowing their cash to just vegetate in accounts paying next to nothing.

Instead savers should be taking advantage of some of the deals on offer via challenger banks and lesser known names across the savings market, many of which, appear to have already factored in a base rate rise into their pricing.

At present, the market leading easy access deals pay 0.65 per cent, whilst the leading one-year fixed rate deal is currently paying 1.51 per cent.

Savers can grab a 0.65 per cent easy-access rate from Coventry Building Society and Family Building Society. 

Hannums said: ‘We have seen improved competitive rates coming to the market for new savers in recent weeks and months from those providers that want savers money, such as challenger banks, in anticipation of a base rate rise as they “price in” what is expected to come.

‘The reality is, if you have money sitting in a poor paying account, especially if your savings are with a high street provider, it’s unlikely that any change in the base rate will make a real difference to the interest you’re earning, or in fact any difference at all if they choose not to increase the rate.’

Should savers fix in or keep it easy?

Fixed rate deals offer the best return for savers and the greatest protection against the eroding power of inflation – but they still don’t keep up. 

Few savers are unlikely to risk stashing money away in a three or five year fixed rate deal knowing that rates may rise in the interim and cede access to their money – even if it could pocket them 2 per cent of interest via the best deals.

The advice from experts is to avoid this in any case and opt for shorter term savings options that will give you some flexibility were rates to rise next year.

‘I think that rates are likely to improve in the medium term, so I’d suggest savers tie in to the best one year fixed rate deal or to look at notice accounts paying over 1 per cent,’ said Blower.

Earlier in the month, we had a look at the best notice accounts as rates on these products rise.  

Being both proactive and willing to try out lesser-known names across the market will enable you to secure the best deals.

‘If you want to improve your interest, now and after a base rate change has happened, then savers need to think with their feet and act,’ said Hannums.

‘Move away from the high street and search out those providers that are looking for savers money in the form of better rates.

‘From these providers we would expect to see better rates down the line, and indeed are already seeing this happen for new savers ahead of any base rate increase announcement.’

For those unsure of where to turn, our best buy savings tables are independent and are in order of the best rate available.  

All banks and building societies that feature are registered with the Financial Services Authority and signed up to the Financial Services Compensation Scheme, which protects cash up to £85,000. 

If you are thinking about moving your money to relatively new or challenger banks, make sure you’ve done your due diligence. 

That is, checking out independent ratings, how good its customer service is, how quickly you can contact the provider and what your money is being used for – and crucially, that is has FSCS protection. 

How to find the best savings rates

Savings rates have been in the doldrums for a while and exacerbated by the pandemic.

But there are ways to ensure your cash is in the best of the bunch at all times. 

Over the past few years a number of savings platforms have launched, offering savers the option to switch as and when better deals become available. 

They each work slightly differently and include their own exclusives. To check out what’s on offer take a look yourself:

> Hargreaves Lansdown Active Savings

> Raisin 

> Flagstone  

Or you can view This is Money’s comprehensive best buy savings tables here, independently curated by savings guru Sylvia Morris:

> Compare best savings rates now