Have interest rates peaked? – how to make the most of your savings

The Bank of England’s (BoE) battle with high inflation might have just entered a new phase after the first pause in the base interest rate rises in nearly two years.

But many are wondering if that’s as high as they’ll go and if it spells bad news for savers as some of the most competitive savings rates are withdrawn.

What’s next for fixed-rate bonds?

NS&I’s recent withdrawal of its market dominating one-year fixed bond means that the competition is also likely to pull back.

Before NS&I launched their bond, the top rates for one-year fixes were at 6%. Since then, the BoE has paused the base rate rises, leaving it at 5.25%, so there’s little incentive for providers to push much higher.

It means we could be past the peak of one-year fixes.

For longer fixed rates, we’re already seeing the most competitive rates drop back. The best three-year fixes fell to under 6% in September, and the best four-year fix only offered 5.75% AER* by the end of the month.

It’s a strong indication that the market expects the base rate to have fallen back at the end of those longer terms.

However, if you can’t fix straight away, there’s no need to panic.

The BoE’s insistence that the fight against inflation isn’t over means we could see more rises further down the line. At the very least, it’s likely to mean it keeps interest rates higher for a while yet.

As a result, we might see some of the most competitive rates retreat, but we’re not expecting dramatic drops in the immediate future.

What’s next for easy-access rates?

Instant and easy-access rates are still pushing forward. Since high street banks were pressured by the regulator in the summer, the average instant-access rate is now more than four times higher than it was a year ago.

And it looks like the smaller and newer banks are keeping up the momentum, with rates of 5% or above appearing.

So, you could nearly double your returns by moving from an average rate to one of the most competitive. It’s worth shopping around.

Like fixed terms, expectations for upcoming interest rates mean we’re not likely to see them rise much more. Although that’s subject to rate expectations staying as they are.

Instant-access products let you withdraw straight away, whereas withdrawals from easy-access products can take up to several working days.

This article gives you information to help you make the most of your money, but it isn't personal advice. If you're not sure if a certain action is right for you, seek advice. Inflation reduces the future spending power of money.

Finding the right savings products for you

When picking savings products, you could consider a ‘portfolio’ approach – this is where you break the cash into chunks depending on when you’ll need it.

If you’re in work, you should consider having three to six months’ worth of essential expenses in savings you can take out quickly as your emergency savings pot. If you’re retired, it is sensible to have around one to three years’ worth.

However, the rest of your savings can be fixed for the periods that make the most sense for your goals. This helps you get the highest possible rates today for each portion of your cash. But remember money in fixed rates isn’t usually accessible until the end of the term.

If you save through a cash savings platform like Active Savings, you can keep an eye on all your savings in one place – which makes managing multiple products much easier.

Through one easy-to-use online account you can access a range of consistently competitive rates offered by our banking partners. As your needs change, you can switch between products in just a few clicks.

New rates are added and removed all the time, so check our website for the latest.

DISCOVER ACTIVE SAVINGS

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

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).

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