A cut to interest rates expected to land on Thursday could spell bad news for people with savings – but there’s still time to grab a good deal and beat the rates cut.
On Thursday, February 6, the Bank of England will meet to decide on whether to raise, hold, or lower interest rates, which are currently at 4.75%.
The markets are widely predicting that the interest rate will be cut by at least 0.25 percentage points, as inflation eases.
The base rate helps dictate how expensive it is to take out a mortgage or a loan, while it also influences the interest rates offered by banks on savings accounts.
Hikes in recent years, designed to combat skyrocketing inflation, have left mortgage rates much higher than was normal for most of the last decade.
The base rate rose as high as 5.25% in late 2023, but the Bank’s policymakers cut it to 4.75% over the course of several months last year.
Now, inflation – which measures how fast prices are rising across the economy – is much lower than the highs of recent years, at 2.5% per year.
While many savings accounts providers will to an extent have ‘priced in’ economic forecasts into their rates, it’s still possible that to better the base rate with some of the best deals on the market right now, which may start to disappear as rates come down.
And if you’re currently holding your money in a tracker account, your rate is guaranteed to be reduced because these accounts mirror changes in the Bank of England base rate.
For example, Chase’s Regular Saver follows 1.25% below the Bank of England base rate (soon to be 1.5% below after a change to its terms on February 16), which means that when the interest rate is cut by the BoE, Chase will automatically lower its rate to by the same amount of percentage points, and the same is true of any savings account with a tracker rate.
That means there’s no harm in shopping around to find the best savings accounts now, either fixed or easy access, to see what you can get.
Right now, the best easy access savings account is also an ISA. This is Trading212, which allows you to pay in and withdraw at any time and offers up to 5.16% on your savings.
Chip will also give 5.15% on its ISA. The advantage of both of these is that they are also protected from tax on the interest.
Both of these accounts will also beat the Bank of England interest rate.
If you’ve already maxed out your £20,000 ISA limit, you could also consider Zenith Bank, which has a 4.7% fix for 6 months, and OakNorth Bank, which gives 4.91% but you need to give 95 day’s notice to withdraw.
Close Brothers will also give you a 4.7% fix for two years, while Zenith Bank will give you 4.65% fixed for two years.
These are higher thank the Bank of England rate, assuming the BoE cuts rates on Thursday, and are guaranteed to stay on that rate for two years because they are fixes. While there’s no crystal ball, it looks likely they will beat the BoE rate for some time.
The best ‘big name’ accounts right now are Leeds Building Society, which gives 4.4%, and Skipton Building Society, again 4.4% including a one-year fix bonus.
Coventry Building Society will give you 4.85% but only allows four withdrawals per year while Virgin Money will give 4.31% with three withdrawals per year, although these aren’t fixed so could be reduced at some point.
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