Bank of England increases interest rates by 0.75 percentage points – how to make more of your savings

Since the last Bank of England (BoE) interest rate rise only six weeks ago, we have another new prime minister and chancellor who immediately ripped up the ‘mini-budget’ of his predecessor.

The increased cost of living has started to bite for many and inflation continues to rise. In fact, it’s expected to reach 13% by the end of the year.

So unsurprisingly, the BoE has once again increased interest rates by 0.75% to 3%. The seventh interest rate rise this year.

Interest rate rises are good news for savers. It’s understandable to expect high street banks to pass on interest rate rises to savers. But that’s not always the case.

As at 3 November, despite the rate changes, many high street banks' rates have barely moved. The average market rate for instant-access accounts is just 0.64%.

Lots of savers are facing more time stuck, earning almost nothing on money held in instant and easy-access bank accounts.

The big story right now and a great opportunity for savers is the rise of fixed-term products or bonds. Fixed-rate bonds have reached their highest levels since December 2012.

So, what can you do to make more of your savings?

1. Look further than your high street bank

Well-known banks often pay the lowest rates.

Some of the large high street banks currently only offer 0.5% on their instant access accounts. That’s just £50 interest on a £10,000 savings pot after a whole year.

Truth is, the big names don’t need to work as hard for your money. But smaller banks and building societies do, and they’ll offer an attractive rate to get it.

You can currently get nearly three times more from our banking partners through our Active Savings service compared to the average market rate. Active Savings offers easy-access products and withdrawals usually take one working day. Comparison with average market rates is based on instant-access products which allow immediate withdrawals.

Saving with your high street bank is often the first port of call as they’re familiar and you trust them. But all UK banks, regardless of how big they are, are covered by the Financial Services Compensation Scheme (FSCS) if they’re authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and PRA. Your eligible deposits will be protected up to £85,000 per person.

This limit applies to all eligible deposits you have under each banking licence. So, if you have more than £85,000 in cash with different banking brands under the same licence, it could be sensible moving your savings elsewhere, to maximise your protection under the FSCS.

Are your savings safe?

2. Use fixed terms

There’s a preference to hold savings in instant or easy-access accounts*. Given how uncertain things are at the moment, that’s no surprise. But you might not need all your money in the same pot, and it could be holding back your returns.

You should keep at least three to six months’ worth of essential expenses in an easily-accessible account for any emergencies. If you’re retired, that should be around one to three years’ worth. But anything over this could be put to work in a fixed-term savings product.

Fixed-term products pay a guaranteed rate of interest which is usually higher than instant or easy-access products. The trade-off is you usually can’t access your money until the term ends. And right now, fixed-rate savings rates are more attractive than they have been for years.

But you don’t need to lock your money away for years if you don’t want to. While many banks only offer fixed-term savings for a year or more, there are a number of banks on Active Savings offering six and nine-month fixed terms. Generally, the longer you fix for, the better the rate.

Locking in rates can be useful when rates are falling or staying flat. But the opposite is also true – you could lose out if rates rise further in the future.

Depending on when you're likely to need your savings, you could also think about blending fixed terms of different lengths, or open new fixed terms regularly. That way you’ll always have some money coming back regularly, while boosting your overall rate.

It's worth pointing out, currently, fixed-term rates don't beat inflation, so the purchasing power of your money will still be eroded over time.

*HL survey conducted by Opinium of 1,522 respondents, April 2022.

3. Make a change today

Doing nothing and leaving your cash savings earning little or no interest costs you money.

You might think that it’s best to keep your money where it is and wait in the hope that rates rise further. But with inflation so high, it’s important to try to limit the damage it can have on your cash savings. You could miss out on better returns over the next year by not taking action now.

Active Savings gives you online access to a range of easy-access and fixed-term savings products across lots of banks and building societies.

You’ll have a choice of competitive rates (often far higher than the big high street banks) and opening new products is easy and takes just a few clicks.

You’ll see everything together in one place when you log in, alongside any other HL accounts you hold with us – making things easier for you.

This article isn’t personal advice. If you’re not sure what’s right for your circumstances, seek advice.

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This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.

Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).