The UK’s long-suffering army of cash savers has been given a much-needed reprieve as the Bank of England raised interest rates by 25 basis points for the second time in nine months. The base rate now stands at a nine-and-a-half-year high of 0.75%.
This is good news for savers, who are likely to see account rates tick up once more. But experts have cautioned against celebrating too soon, noting that banks and building societies will not move straight away.
“Without wanting to put too much of a dampener on it, savings rates are unlikely to change immediately,” says Anna Bowes, co-founder of savings advice website Savings Champion. Bowes also says we’ll have to wait and see if the full rise is extended to all variable accounts, which it was not at the last hike in November.
In fact, she notes, average interest rates on easy-access accounts have risen by just 0.09%, failing to track the 0.25% rise at the end of last year. “Some banks and building societies didn’t raise rates on some accounts at all, demonstrating how loosely the movement in the base rate is tracked by providers these days,” she adds.
Charlotte Nelson, finance expert at Moneyfacts, says the Bank’s decision to raise rates “shows that there is some light at the end of the tunnel” for savers.
She also notes, though, that there’s still a long way to go until savers are getting a good deak, recommending consumers to “be on the ball to ensure they get the best possible deal”.
Bad News for Borrowers
The fli side, of course, is that mortgage rates are likely to go up. And unlike with savings accounts, banks will pass on the rise immediately to these customers.
Nelson says the fixed-rate mortgage market sector has been increasing for some time now, with borrowers beginning to consider long-term options to protect against future rate hikes.
Today’s news will have the most significant impact on borrowers with standard variable rate mortgages, with average monthly repayments likely to increase by almost £30. Stepchange, the debt charity, estimates a rise of just £23 would push around one in 10 of its clients with mortgages into a negative monthly budget.
“Borrowers should see this as a call to action and switch deals before it is too late,” Nelson adds.
Best Buy Rates
The best rate on offer as at August 1, according to Savings Champion, is 2.67% on a fixed-rate bond from Secure Trust Bank, but savers need to lock in their cash for five-years and deposit a minimum of £1,000.
Hampshire Trust Bank, meanwhile, has three-year and two-year fixed bonds paying 2.35% and 2.2% respectively. For a one-year bond, you’ll get 2.05% from Atom Bank.
For fixed-rate ISAs, Shawbrook Bank will pay you 2.35% to lock your money up for five years, or 1.85% for three years – both come with minimum deposits of £5,000. Paragon’s two-year rate of 1.7% may be better, especially with a minimum of just £500.
The best rate on variable rate ISAs comes from Charter Savings Bank, while Coventry Building Society tops the tables for easy-access accounts, both at 1.4%.
