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Bank of England increases interest rates to 0.25% - how to make more of your savings

As the Bank of England announces an interest rate rise from 0.10% to 0.25%, we look at how savers can make more of their savings.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The Bank of England (BoE) has increased the base interest rate from 0.10% to 0.25%.

And with inflation currently above 5%, and expected to reach 6% in April, more interest rate rises to help dampen inflation could be on the horizon.

This should be 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. The last time we had an interest rate rise (August 2018), only a small fraction of banks passed on the rate rise in full.

Many savers are facing more time stuck earning almost nothing on money held in easy access bank accounts.

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

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

1. Look further than your high street bank

Well-known banks usually pay the lowest rates.

Most of the large high street banks offer 0.01% on their easy access accounts. That’s just £1 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 do, and they’ll offer an attractive rate to get it. You can currently get up to 50 times more from your savings across our Active Savings service.

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 size, are covered by the Financial Services Compensation Scheme (FSCS) if they are authorised by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). Your eligible deposits will be protected up to £85,000 per person.

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

Find out more about FSCS

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 easy access account for any emergencies (around one to three years’ worth if you’re retired). But anything over this could be put to work in a fixed-term savings account – also called fixed-term bonds.

Fixed-term accounts pay a guaranteed rate of interest which is usually higher than instant or easy access accounts. The trade-off is that you usually can’t access your money until the term ends.

You don’t need to lock your money away for years if you don’t want to. You can usually fix from just a few months or up to five years. 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.

You could also think about blending fixed terms of different lengths, or open new fixed terms every month. 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 money will still be eroded over time.

*HL survey of 1,396 respondents, September 2021

BUILDING A MIX OF SAVINGS

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 a wave of inflation hitting the market, 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 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 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.

The best rates on Active Savings

Easy access

Up to
0.50% | 0.50%
(AER | Gross)

Avg. market rate
0.11%

1 year

Up to
1.36% | 1.36%
(AER | Gross)

Avg. market rate
0.28%

2 years

Up to
1.55% | 1.55%
(AER | Gross)

Avg. market rate
0.43%

3 years

Up to
1.65% | 1.65%
(AER | Gross)

Avg. market rate
0.72%

Easy access

Up to
0.50% | 0.50%
(AER | Gross)

Avg. market rate
0.11%

1 year

Up to
1.36% | 1.36%
(AER | Gross)

Avg. market rate
0.28%

3 years

Up to
1.65% | 1.65%
(AER | Gross)

Avg. market rate
0.72%

Find out more

Please note the products above are some of our most popular, but more are available. Click the link above to see our full range. Products can be added or withdrawn at any time. Minimum deposit requirements apply to individual products. Easy access products pay a variable rate and fixed term products pay a fixed rate.

Source: Bank of England 30 November 2021. Comparisons with average market rates for easy access products are based on instant access products, which allow immediate withdrawals. Active Savings offers easy access products and withdrawals usually take one working day.

AER (Annual Equivalent Rate) shows what the interest rate/expected profit rate would be if it was paid and compounded once each year. It helps you compare the rates on different savings products. Once you have opened a fixed term product the rate won't change, but rates on easy access products can vary.

Gross means the rate without any tax removed. Interest/profits are paid gross. You are responsible for paying any tax due on interest/profits that exceed your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

The savings of private individuals held with authorised banks and building societies are covered under FSCS. All of our partner banks are authorised by the Prudential Regulation Authority (PRA) and covered under FSCS.

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

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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