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Could savings rates be on the rise?

We look at the latest Bank of England survey to see what people really think about savings rates, and explore where rates could go from here.

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.

According to a recent Bank of England (BoE) survey it looks like some savers might be a bit out of touch with reality.

25% of people thought they were getting more interest on their savings in May than a year earlier, when in fact rates have dropped significantly.

The drop was accelerated after the BoE cut the base interest rate twice in quick succession in March. It now stands at 0.10% – the lowest in history. At the same time it offered cheap funding to banks, meaning there wasn’t as much need for them to offer attractive rates to savers.

A year ago the average instant access savings account paid 0.45%. Today it pays a paltry 0.22%. Similarly, a 1 year fix paid 0.93%, now down to 0.60%.

Average savings rates

Scroll across to see the full chart.

Source: Bank of England 15 June 2020.

Meanwhile 42% of people surveyed expect rates to rise over the next year. This means they could be running the risk of leaving their cash in an instant access account while they wait for a big change to persuade them to shift somewhere more rewarding.

Unfortunately they could be in for a horribly long wait, during which time their savings could be earning just 0.01% – the rate most high street banks are paying on instant access accounts.

We need to get to grips with what we’re earning on our savings. And if it comes as a surprise we need to be prepared to switch to a better deal.

You should make sure you have a minimum of three to six months’ worth of expenses in an emergency fund, held in an easily accessible account. But for anything over this you could look at fixed term savings products, as they usually offer a better rate.

As the rate is fixed for the term you’ll be sheltered from any rate cuts until it matures. Remember though, you usually won’t be able to access your money until the product matures. So if better rates come on to the market during the term you won’t be able to take advantage of them with these products.

This article isn't personal advice, so you need to be comfortable with making your own decisions.

Where next for savings rates?

Savings rates usually react to changes in the base interest rate. We think the 42% who expect rates to rise over the next year are being a touch optimistic.

We’ve seen savings rates continue to fall through June and it’s not yet clear if they’ve bottomed out. So we can’t rule out more cuts in the coming weeks or months.

The BoE Chief Economist has even said that negative interest rates are being considered. This is among other potential steps to help the economy, so it’s not guaranteed. If this happens we expect to see savings rates fall further.

The markets aren’t predicting a rise in interest rates any time soon. In fact, between now and the end of next year they think there’s a reasonable chance of a further cut.

But you’d be wise to keep one eye on inflation. Usually the BoE can use interest rates to control inflation. It can lower the base rate if inflation falls and raise it if inflation ticks up above its target.

Inflation has recently fallen, largely driven by a reduction in oil prices and a cap on energy prices. Where it goes from here is difficult to predict. If it rises above the government’s 2% target, there could be an argument for the BoE to raise interest rates in response. This could be good news for savers.

Ultimately we’re in unchartered waters and no-one has a crystal ball. On balance, we’re hearing more noise around interest rates staying low for the foreseeable future, than the possibility of them rising.

It’s unlikely that improved rates will land in your lap. So now could be the time to take matters into your own hands.

An easy way to get your cash working for you, not the other way around

With savings rates falling across the market, you need to put in more effort to get a good return on your savings.

This usually involves scouring best buy tables and opening products with new banks. You’ll need to prove who you are and set up new security information time and time again. Sounds exhausting, doesn’t it?

Active Savings makes this easy – it cuts out the hassle and saves you time. With one online account you can choose easy access and fixed term savings products from a range of different banks and building societies. Once you’re set up there’s no paperwork when you want to open new savings products. It’s all done online in a few clicks.

There are competitive rates to choose from, far above the current market average. You can currently get up to 0.55% (AER/Gross*) on easy access and 1.00% (AER/Gross*) on a 1 year fix.

Find out more

Remember inflation reduces the future spending power of money.

Products available through Active Savings can be added or withdrawn at any time. Minimum deposit requirements apply to individual products. Instant access products allow immediate cash withdrawals, Active Savings offer easy access products where withdrawals usually take one working day.

Waiting for a great rate?

Sign up to our alerts to be one of the first to hear when new products are available on Active Savings.

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*AER (Annual Equivalent Rate) shows what the interest rate would be if interest was paid and compounded once each year. It helps you compare the interest rates on different savings products.

Gross means the interest rate without any tax deducted. Interest is paid gross. You’re responsible for paying any tax due on interest that exceeds your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

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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