The central bank confirmed it would be raising the base rate once again as a means of mitigating the impact of inflation. As a result, the Bank of England’s base rate is now at four percent after the tenth consecutive interest rate increase by the financial institution. Experts are highlighting this will be “more favourable” for savings accounts in the months ahead.
Returns on savings accounts have been severely diminished in the last year as a result of soaring inflation.
Currently, the rate of Consumer Price Index (CPI) is sitting at 10.5 percent but it was recently as high as 11.1 percent two months ago.
One of the savings accounts to be most adversely affected by inflation’s impact has been cash ISAs.
Currently, the ISA allowance for the 2022/23 tax year has been set at £20,000 by the Government.
READ MORE: ‘World beating’ Isa savings option yields 6.6% with more to come
This amount can be split across different types of ISAs, but savers can only add money to one ISA of each type in a tax year.
According to Moneyfacts.co.uk, the top ISA interest rates in the UK have increased significantly over the past 12 months.
These include over easy access savings accounts, notice, one-year and five-year fixed terms ISAs.
Anyone who locked into the top one-year fixed rate ISA a year ago will find the equivalent top deal now pays more than four times the amount of interest.
DON’T MISS:
As it stands, the top rate on a five-year fixed ISA pays almost twice the rate than the equivalent deal in February 2018.
In light of the base rate decision, experts are encouraging savers to take advantage of their ISA allowance amid the rise in interest rates.
Rachel Springall, a finance expert at Moneyfacts.co.uk, broke down why the future is “looking bright” for savers.
She explained: “Savers have just a couple of months left until the new tax-year begins, so time is ticking for them to utilise their current ISA allowance.
READ MORE: Recession fears continue despite UK economy growing
“Thankfully, the run-up to ISA season is looking bright as rates are much more favourable than they were a year ago.
“Those savers who locked into a top one-year fixed rate ISA a year ago will find the equivalent top deal pays more than four times the amount of interest.
“Consumers who prefer a longer-term fixed ISA will be pleased to see much higher rates when they come off their current deal this year, as the top rate on a five-year fixed ISA is over two percent higher than the equivalent deal in 2018.”
The money expert noted that people may be able to save more than expected due to their earned interest being saved through other allowances.
Ms Springall added: “It is still possible that savers may forgo using their ISA allowance due to the top returns available outside of an ISA wrapper, as many savers will find their earned interest is protected under the Personal Savings Allowance (PSA) which has been in force since 2016.
“However, rising interest rates could result in consumers with larger pots breaching their individual allowance, which is why ISAs offer considerably more suitable longer-term tax-free benefits.
“The PSA allows basic rate taxpayers to take home up to £1,000 worth of savings interest tax-free each year (£500 for higher rate taxpayers), so it’s worth comparing deals away from ISAs carefully with this in mind.
“Savers will need to check their rate regularly to keep on top of the latest rate rises and remember that they can look for an alternative deal that allows them to transfer in their current ISA to keep their tax-free wrapper intact.”
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.