Why you need to act before August 1 to get high interest rates on savings

Interest rates on savings accounts have been consistently high this year, as the base rate remained at 5.25%. 

The base rate has been stuck at this point since August 2023, after we saw consecutive rises from December 2021. Staggeringly, the last cut in the base rate was in March 2020.

These increases and subsequent stability indicated good news for savers, as providers have offered rates above 5% on savings accounts - which is significantly higher than the current inflation rate of 2%. 

On the other hand, the base rate has pushed up mortgage rates and caused anguish for homeowners. Therefore, a base rate reduction will be more than welcome from this perspective. 

But for savers, it’s now an anxious wait ahead of the next Bank of England meeting on Thursday. 

Predictions are 50/50 that the monetary policy committee will vote in favour of dropping the base rate from 5.25% to 5%. Previously, it was expected the base rate would be unchanged in August, and instead things would shift at the next meeting in September. 

But the tide appears to be turning, as forecasters are now saying there could be a case for a base rate drop as soon as Thursday. 

Recent figures show inflation held steady at 2% in June, which was the Bank of England’s target. If inflation stays low then this is a good case to start cutting the base rate, but there are other elements to consider. For example, services inflation (education, hospitality and culture) continues to be high at 5.7% and this could be the sticking point that sways the committee to hold off reducing the base rate. 

So as the decision could go either way on Thursday, it’s best for savers to act now. 

First of all, take the time to audit your savings and establish what interest you are currently earning. If the interest rate is below 4%, then you can definitely get a better deal today. 

Then review or establish your savings goals by asking yourself some key questions. Are you saving for a long-term or short-term goal? Do you need a savings account that allows you to deposit money each month? Do you have a lump sum of money that you don’t need to access for a period of time? 

These questions will help you to decide what type of savings account you need. This is important as certain accounts will come with restrictions, and these need to be considered alongside the interest rate. 

Challenger banks and building societies are currently offering fixed-rate accounts above 5%, but you won’t be able to access your money until the end of the term. 

However, this restriction comes with a reward as the interest rate is fixed for the term, meaning if the base rate drops the interest rate won’t be impacted. These accounts work best for lump sums with a specific purpose and clear timeline - like a house deposit. 

Currently, Union Bank of India is offering a one-year fixed-rate account at 5.40% and this can be opened with £1,000. Raisin UK also has a range of competitive interest rates from providers, including GB Bank’s one-year fixed-rate account at 5.26% and Ziraat Bank’s one-year fixed-rate at 5.25%. Both these accounts can be opened online and with a minimum deposit of £1,000. 

Alternatively, if you would prefer access to your money whenever you need it - then explore instant or easy access accounts. These accounts normally have a variable interest rate, which means the provider can reduce or increase the rate, but there are still competitive deals available. 

Oxbury has an easy access account at 5.04%, but you’ll need to deposit at least £25,000 and keep the balance above this to get the interest paid on a monthly basis. Alternatively, Principality has an easy access account at 5.0% and this can be opened with as little as £1, but bear in mind you can only make three withdrawals every calendar year. 

These deals are just a glimpse at what is currently available in the market, and it’s important to do your research before taking the leap. However, don’t wait too long as these rates could change once the Bank of England has made its decision on Thursday.