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Have interest rates peaked? – what’s next and what can you do?

Are interest rates as good as they’re going to get? Here we take a look at what affects savings rates, what could be next for them, and how to get more from your cash.

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.

Sarah Coles
Head of Personal Finance

Published on 25 August 2023

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

It seems that the Bank of England can’t afford to concede in its epic battle with inflation.

Record wage inflation, and sticky core inflation, mean another interest rate rise is expected in September. With a chance of another in October too – read our guide on inflation for tips to help tackle it.

However, anyone waiting to fix their cash savings in the hope of better deals further down the line could be in for a surprise. As rates in some parts of the market might have already peaked.

What’s next for fixed rate bonds?

There are signs that the best one-year fixed rates could be coming off the boil.

By mid-August 2023, the best rates on the market had been withdrawn from 6.10% and sat only fractionally above 6%. And while the average rate is still rising, we’re seeing fewer rates push ahead at the top of the market.

Rates for one-year fixed terms are driven to a great extent by changes in rate expectations. The market was already expecting one or two more Bank of England rate rises, so we’re not likely to see a great deal of movement from here – unless we’re hit with something completely unexpected.

For five-year fixed rate savings, the most competitive end of the market appears to have stabilised.

It owes much to five-year swap rates – much like mortgages do. Mortgages tend to react faster and more dramatically to fluctuations, but you can look at the direction of travel for a broad indication of where five-year fixed rate savings might go.

Average five-year fixed rate mortgages reached a recent peak of 6.37% on 2 August, according to Moneyfacts, before dropping to 6.28% by 15 August. This could mean longer-term fixed savings rates are around the peak too.

Could savings rates stay high?

There’s one factor that could help move the market in the coming months and keep interest rates high.

Last autumn we saw demand for fixed term savings products boom – and by far the most common period to fix for was one year. It means the banks could lose a big chunk of cash in September, October, and November, as these products mature. So, there’s every chance they will be competing hard to attract savings to make up for it.

It means we could see some competitive deals in the fixed rate market at that point.

However, we can’t know what will have happened to overall rate expectations by the time we see this development. And fixed rates aren’t certain to be any higher than they are now.

For those who are considering fixing savings, this shouldn’t be enough to persuade you to change your plans. Playing the waiting game is a gamble.

Remember you can’t normally access money in fixed rate savings until maturity of the term so the most important factor to consider always remains when you need the money for.

What’s next for easy access rates?

The instant and easy access market is different and is still pushing ahead.

Pressure on the high street’s big banks from the regulator is focused in this area, which should keep rates among the giants rising. Meanwhile, smaller and newer banks and building societies have been competing hard, nudging ahead of one another to keep up the switching momentum.

We can expect this to continue in an environment of rising Bank of England rates.

The usual rule applies though: even though instant access rates with big banks are rising, it’s worth switching to the best possible easy access rate as soon as you can.

Because the rates are variable, it means you could get the maximum benefits of future rate rises.

Instant access products allow immediate withdrawals whereas withdrawals from easy access products can take several working days.

Finding the best savings products for you

When picking savings products, you could consider a ‘portfolio’ approach – where you break the cash into chunks depending on when you will need it and the interest rates you are looking for.

If you’re in work, you should have three to six months’ worth of essential expenses in savings you can take out quickly as your emergency savings. If you’re retired, it should be 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.

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 online account you can access a range of easy access and consistently competitive fixed rate products offered by our banking partners. As your needs change, you can switch between products in just a few clicks. Inflation reduces the future spending power of money.

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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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