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Can you benefit from the savings price war?

Fixed term savings rates are rising. We dig into the details and explain why now could be a good time to take advantage of better savings rates.

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.

UK households have saved a whopping £184bn over the past year. But at the same time, they’ve suffered cut after cut to the rates on their lockdown cash. Big banks, in particular, pay next to nothing these days.

After months of negative headlines, savers finally have some positive news. Rates are resurging.

Recent weeks have seen some banks jostling for position at the top of the fixed term ‘best buy’ tables, leading to rates edging higher and higher.

At the start of April, the best one-year fix in the market stood at 0.65%. You can now get up to 0.85%, with new products being added all the time. Most other fixed terms have seen similar rises.

What’s behind it?

Banks need to balance the amount of money they bring in from savers with the amount they’re lending out. The rate they offer is essentially the price they’re willing to pay to attract this money and is therefore indicative of how badly they need cash.

The decision by the chancellor to extend the stamp duty holiday is the most likely reason. The property boom has continued as buyers snap up the dwindling number of properties on estate agents’ books. And mortgage borrowing is at an all-time high.

Value of mortgage approvals

Source: Bank of England

All this lending creates a need for funding, so banks go out into the market to bring money in from savers. If competition is tough, they’ll need to raise rates to get what they need.

Are NS&I still having an impact?

To dig a little deeper, we need to cast our minds back to November. National Savings & Investments (NS&I) cut their previously market leading rates to the bare bones. This released a tidal wave of money into the savings market which filled many banks’ coffers. Rates in the rest of the market began to drop as banks didn’t need to compete as hard to bring in the money they needed.

Having been sufficiently full for the winter, some banks are now realising they need to attract deposits again. Because several banks need money at the same time, they are competing to be top of the list, and rates edge up.

Another reason could be that these banks are looking to raise money for specific projects, like acquiring lending books from other providers.

How long will it last?

The new deadline for the stamp duty holiday is the end of June, so this could be a short-term flash in the pan as banks get their fill until then.

The banks topping the rate tables aren’t big high street brands and will have a limited capacity. Being at the top will bring a lot of money through the door, so the products might not be around for long.

Looking more widely, the Bank of England doesn’t expect to raise the base interest rate until inflation is consistently at or above their 2% target. Under their current projections this doesn't look like it'll happen any time soon. So there’ll be little reason for market-wide rate rises in the near future.

If rates do increase, it’ll likely be down to competition among individual banks. If a few of them need to attract money at the same time, we could find ourselves in a similar situation to what we’re experiencing at the moment.

Now could be an opportune moment to take advantage of the rates available, especially if your current savings are stagnating.

How to make more of your cash in minutes

Active Savings could help. It lets you pick and mix savings products from lots of banks and building societies, all in one online account. Choose from easy access and fixed term products, ranging from just a few months up to five years.

As with the wider market, rates on Active Savings have improved recently, with a selection of market leading rates* added. This includes 9 month and 18 month fixed terms.

*Rates checked against Moneyfacts on 21 May 2021 at 10:55AM.

The best rates on Active Savings

Easy access

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

1 year

Up to
1.33% | 1.33%
(AER | Gross)

2 years

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

3 years

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

Easy access

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

1 year

Up to
1.33% | 1.33%
(AER | Gross)

3 years

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

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.

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.

Will your money be protected?

When you save with Active Savings, your money will be held by the banks you choose, but you’ll manage it all in one easy-to-use online account.

All our partner banks on Active Savings are covered by the Financial Services Compensation Scheme (FSCS), regulated by the Financial Conduct Authority and authorised by the Prudential Regulation Authority.

More on the FSCS

It’s easy to get started with Active Savings and you can be set up in minutes.

This article isn’t personal advice. Please remember that inflation reduces the future spending power of money. Fixed term products don’t usually allow access to your money until they end.

AER (Annual Equivalent Rate) - AER 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.

Gross - the interest 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.

Expected profit rate (EPR) - Islamic banks offer an expected profit rate rather than interest on their savings products in order to comply with Sharia banking principles.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). 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.

What did you think of this article?

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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