The Bank of England’s decision to increase its base rate on Thursday has already impacted savings rates. We know this because two providers have launched new table-topping deals on easy access and fixed accounts.
If you’re earning a poor interest rate on your savings, then now’s a good time to look at what else is available. Here’s the lowdown on the current savings market, and how you can move your money.
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How does the base rate impact savings rates?
The Bank of England’s base rate determines the rate at which banks can lend to one another. For years it’s been in the doldrums. For most of 2021 for example, it sat at a record-low of 0.1%.
Due to years of low base rates, banks have been able to borrow at rates of next to nothing. As a result, there’s been little appetite to offer savers anything other than misery rates. For mortgage holders, however, it’s been a different story as they’ve benefitted from years of rock-bottom rates.
Yet, on 3 February, the Bank of England decided to hike its base rate from 0.25% to 0.5%. It’s the second time in two meetings of the Monetary Policy Committee that the central bank has acted. The latest rise follows its decision to up the rate from 0.1% to 0.25% in December. Importantly, more base rate rises are likely later this year as the UK economy grapples with rising inflation.
We’re already seeing how the new base rate is impacting mortgages, making them more expensive, so many will be wondering when savings rates will also increase?
Thankfully, this is already happening. Two providers have made a move by launching new table-topping rates.
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What new savings rates are available?
Following the base rate rise, savings rates have already increased on easy access and fixed savings accounts.
Easy access accounts
On the easy access front, Aldermore now pays the highest savings rate at 0.75% AER variable. To open the account, you must apply online via the Aldermore website and make an initial deposit of at least £1,000.
However, there is a catch with this account. While you can access your money, it isn’t suitable if you want to make lots of withdrawals. That’s because you can only make two penalty-free withdrawals a year. If you make more than this, your rate will drop to just 0.1% AER variable.
If you are looking to make more than two withdrawals, then both Cynergy Bank and Investec offer easy access accounts that pay a slightly lower 0.71%. Both of these accounts allow you to access your money as often as you like.
Cynergy’s rate includes a 0.41% fixed bonus for a year and you can save from £1. The Investec account doesn’t have a fixed bonus and you need at least £5,000 to open it.
For more options, see The Motley Fool’s top-rated easy access savings accounts.
Fixed savings accounts
Recognise Bank’s new fixed savings account pays a table-topping 1.6% AER fixed for one year. This is significantly higher than the next-best one-year fixed account from Union Bank of India, which pays 1.4% AER fixed.
To access Recognise Bank’s account, you’ll need to open it online and have at least £1,000 to save.
If you’re happy to lock away your cash for longer, you can earn a higher savings rate. Monument Bank is currently at the top of the pile, paying 2.2% AER fixed for five years.
However, accounts with very long fixed terms come with a risk that if savings rates rise in future, you won’t be able to move your money. For more options, see our list of top-rated fixed savings accounts.
All of the accounts above have the full UK £85,000 FSCS savings safety protection. This means that if any of the providers go bust, your money will be protected.
How easy is it to move your money?
There is no equivalent scheme to the current account switch service for moving savings accounts. This means that if you want to switch, you’ll need to manually move over money from your old savings provider to your new one.
Keep in mind that some savings accounts require you to link your current account. In such instances, you may have to withdraw your cash to a current account before being able to stash it into a new savings account.
While it may sound laborious, moving savings accounts isn’t too complex in reality. With that said, some providers do make it easier than others to move your cash. If this is something that concerns you, do take the time to read reviews of savings providers before deciding on whether to open a new account.
For more savings tips, plus information on how you can boost your interest rate, see our article that offers four ways to bag yourself the highest savings rates in 2022.
