The Bank of England has bumped its Base Rate up seven times since December in a bid to help temper the UK’s soaring inflation. With news that inflation rates hit double-digits again in the year to September, many might be wondering how this may bear an impact on their savings.
The recent Consumer Price Index (CPI) reports inflation rates have snapped back to a 40-year high of 10.1 percent. In view of this, it’s largely expected that the Bank of England will increase the Base Rate again in the coming weeks.
While borrowers are likely to suffer as repayments risk an increase, it comes as better news for savers, as rates offered by high street banks and building societies should see an increase, too.
James Blower, head of savings at Zopa said: “The Bank of England’s Base Rate rises, which are aimed to help get inflation back to its two percent target, are the main reason that savings rates are also going up across the market.
“This is a win for consumers looking to save as it has created better and more competitive rates after a long period of low-interest options offered by legacy banks. In less than a year, the Base Rate has increased by 2.15 percent and this is forecast to rise further still in the coming months, meaning savings rates could continue to move up alongside this.”
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However, Mr Blower continued: “While rates won’t increase forever, it’s a good time for consumers who are looking to start saving, or for those who haven’t seen their interest rate rise on their savings account, to shop around for alternatives.
“In particular, they should look at saving options that can offer the best combination of interest rate, service, accessibility and tools to manage their money. In general, newer banks in the market tend to offer higher interest yields than high street banks do.”
According to MoneyFacts, Skipton Building Society’s easy access account is currently topping the leaderboard with an Annual Equivalent Rate (AER) of 2.55 percent, while Gatehouse Bank’s Five-Year Fixed Rate bond is topping the board of fixed rates with an AER of 5.10 percent.
This reflects a sizeable jump in rates offered over the past two years, as back in October 2020, when UK inflation rates were a mere 0.7 percent and the Base Rate was 0.10 percent, the highest interest savings account on the market offered rates ranging between 0.96 percent and 1.90 percent.
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Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Savers may be pleased that cash savings rates continue to rise amid uncertainties surrounding the stock market.
“Cash savings accounts are a traditional haven for consumers, and fixed interest rate paying accounts provide a clear guaranteed return for investors during unprecedented times of uncertainty.”
Although, with a 10.1 percent inflation rate, the true spending power of savers’ cash still erodes as no interest rate on the market exceeds this figure.
However, it’s still better to opt into the accounts offering the better rates if appropriate, as Ms Springall highlights “it is imperative savers do not become apathetic to switch at a time when competition in the top rate tables is rife”.
Amid the cost of living crisis, some savers may prefer to keep their cash close to hand, and fortunately, variable rates on both easy access accounts and ISAs have also improved, Ms Springall said, but savers will need to check the terms of each account to ensure it suits their needs.
“Savers would be wise to review their existing accounts now and switch to take advantage of the latest top-rate deals.
“As we have seen time and time again, there is no guarantee that savers will see much benefit from a Base Rate rise, so it’s important they reconsider their loyalty if they are getting a raw deal.”
The next Bank of England meeting to discuss the Base Rate will take place on November 3.
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