Savings rates are falling - should you fix now?
Savings rates are edging downwards following the Bank of England’s decision to reduce interest rates in August, and with further cuts likely, it makes sense to review your savings sooner rather than later.
The good news is that there are still plenty of accounts paying inflation-beating returns, although the best returns might not be around for long.
Mark Hicks, head of Active Savings, Hargreaves Lansdown said: “Since the Bank of England reduced the base rate on 1 August, banks and building societies have been quick to react by reducing rates across fixed terms and cutting the rates on their easy access products. Last week, around 40 banks cut their savings rates. In the week before (when the Bank of England cut its rate), it was closer to 60.”
Shorter term fixed rate bonds currently pay significantly higher returns than longer-term fixed rate savings accounts, so if you’re comfortable tying up your cash for a while, you might want to consider a one or two-year bond rather than a longer-term option. That said, with expectations that rates will continue to fall, long term fixed rates, although lower now, might seem much more competitive in a few months’ time.
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According to savings website SavingsChampion.co.uk, the top one-year fixed rate bond from Union Bank of India, pays an annual equivalent rate (AER) 5.25% on a minimum balance of £1,000, whilst the market-leading five year bond, the Green Fixed Deposit account from State Bank of India, pays 4.86% AER on a minimum deposit of £10,000. If you don’t have this much to save, HTB offers a rate of 4.85% AER on Issue 38 of its 5 Year Bond, which can be opened with just £1. None of these accounts permits withdrawals during the fixed rate term.
If you’d rather not tie your savings up and are looking for an easy access savings account, bear in mind that rates on these accounts are usually variable, so you’re likely to see the amount of interest you earn fluctuate over time. You’ll therefore need to keep a close eye on your returns and vote with your feet if you find a more competitive account elsewhere.
Anna Bowes, founder at SavingsChampion.co.uk, said: “It’s a shame to see that the average of the top five has dropped below 5%, but with just one account now matching base rate, never mind beating it, it was inevitable.
“That said, considering there has been a base rate cut, things seem to have quietened down after an initial flurry immediately after the event.”
Principality Building Society currently holds the top easy access savings account spot with its Online Bonus Triple Access Issue 2 paying 5% AER. Other competitive easy access accounts include Raisin’s Easy Access account via Hoist Finance paying 4.85%.
Despite many savings providers cutting their savings rates in recent weeks, product choice overall rose again month-on-month to 2,024 deals in August, according to Moneyfactscompare.co.uk, so savers have plenty of accounts to choose from.
“This marks the highest count since April 2012, and a consecutive rise from the previous period from June to July,” said Rachel Springall, finance expert at Moneyfactscompare.
“This would be a great opportunity for savers to review their accounts and switch if they feel they are not being rewarded for their loyalty.”