It’s now been a year since the Bank of England announced the first of eight successive base rate rises, moving gradually from the all-time low of 0.1% to where we are now at 3%.
Savings rates have increased, too. Though there are still plenty of accounts offering far less than that 3% rate, we’ve seen some of the highest paying options in years.
With another Bank of England meeting coming up on Thursday, and a good chance this committee will announce another increase, you’d hope that means further boosts to your savings returns.
Sadly you might well be disappointed. Over the last month the best buy fixed savings accounts have been dropping on an almost daily basis. It looks like one-year fixes might have peaked at 4.65%, with the best you can get now down to 4.31%. Elsewhere longer fixes were above 5%, but the best five year rate is now at 4.8%.
Even if a further base rate increase does occur it could be that fixes stay where they are, perhaps even continue to fall. In part it’s down to longer term predictions on where the base rate will go. These are now much lower than what was anticipated just a few months back.
After the mini-Budget debacle it looked like they could hit more than 6% next year, and fixes rose to reflect that. Now economists are saying the peak could be around 4.5%. Hence the recent drops on longer terms savings rates.
If those predictions are correct, it might mean if you have any cash you can put away for a year or more it’s better to act now than wait any longer. How long you fix for depends on when you’ll need to access the money as there will be interest penalties if you try to take the cash out sooner.
It’s also worth checking whether the interest is paid monthly, annually or at the end of the fix. With the latter, especially on larger amounts, there’s a good chance you’ll breach the tax-free Personal Savings Allowance (PSA). This is set at £1,000 of interest per year for basic rate taxpayers, and £500 for those on the higher rate.
The amount over your PSA will be taxed at your income tax rate. Say you have £10,000 put away at 4.5% a year for three years, you’ll earn £1,412 of interest. Get that as a lump sum after year three and 20% or 40% will be knocked off either £412 or £912.
That’s a lot. But if it’s paid each year you’ll remain within the tax-free allowance each year, though you’ll need to account for any further savings held elsewhere, too.
The other big risk with any fix is that rather than drop elsewhere, they could actually improve, and you’d miss out on higher rates. In fact, you can beat all the fixes right now with a handful of current account linked easy-access or regular savings accounts.
Barclays’ customers can access the Blue Rewards Rainy Day Saver paying 5.12% on up to £5,000, though the rate is variable and could change. Or better still you can open a First Direct regular saver at 7% or Club Lloyds monthly saver at 5.25%. But both of these have maximum monthly deposits of £300 and £400 respectively.
Perhaps the best approach is to mix all three. Add new money from your salary to one or more regular savers, put your emergency funds into an easy access account, then lock away the rest, even in a mix of different length fixes based on when you might need the money.
Andy’s Best Buys: Fixed savings accounts
Zenith via Raisin
Length of fix: 6 months
Rate: 3.4% AER
Atom
Length of fix: 9 months
Rate: 3.75% AER
Secure Trust Bank
Length of fix: 1 year
Rate: 4.31% AER
Union Bank of India
Length of fix: 2 years
Rate: 4.65% AER
First Save
Length of fix: 3 years
Rate: 4.8% AER
Gatehouse
Length of fix: 4 years
Rate: 4.65% AER
Beehive Money
Length of fix: 5 years
Rate: 4.85% AER
For more details on these and other switching deals head to Be Clever With Your Cash.
Andy Webb is an award-winning blogger and podcaster from Be Clever With Your Cash. Follow Andy on Twitter, YouTube and Instagram via @andyclevercash
If you want more tips and tricks on saving money, as well as chat about cash and alerts on deals and discounts, join our Facebook Group, Money Pot.
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If you want more tips and tricks on saving money, as well as chat about cash and alerts on deals and discounts, join our Facebook Group, Money Pot.
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