Sarah Coles 10 April 2019
So after months of political wrangling the can has finally been kicked down the road for Brexit. We now have until 31 October to agree a deal with the EU, a delay which provides some welcome breathing space for politicians and the UK public alike.
But what could this mean for interest rates? In the short term at least, it seems unlikely that the Bank of England will have any appetite to change interest rates. Our economy is still growing, albeit slowly, and inflation seems under control.
We can also look to the markets for their predictions, although bear in mind they don’t always get it right. Nonetheless they are currently predicting an 84.2% probability that rates won’t change this year.
The impact on your savings
Uncertainty around Brexit has caused many people to delay making any long-term decisions with their cash; as a result more and more money has been parked in easy access accounts.
Unfortunately sitting in easy access, waiting for the dust to settle means missing out on the higher rates offered by fixed term savings. Savers still using high street banks are paying an even higher price as big name banks typically offer some of the lowest rates.
|Bank||Instant access savings rate (AER/Gross)|
|Royal Bank of Scotland||0.20%|
|Based on £10,000 deposited, correct as at 09/04/19.|
Please note high street banks usually allow you to instantly withdraw your money at any time, with Active Savings withdrawals usually take up to one working day.
These sluggish savings rates are only partly due to low Bank of England rates.
The launch of Funding for Lending in 2012 and then the Term Funding Scheme in 2016, gave high street banks access to cheap money from the government, so they haven’t needed to compete for your savings.
Instead competition has been driven by newer banks competing for market share and building societies seeking to offer value to members. As a result all the top rate paying access accounts, are from newer and smaller banks and building societies.
The difference is stark, the best rates on easy access accounts are ten times more than other’s available on the high street.
Get your cash working harder – a simpler way
Waiting to see what might happen to interest rates could mean missing out on better returns now. The best way to avoid dismal interest rates right now is to get more active.
First consider money you may need in an emergency. You could look at easy access savings offering a decent rate – put 3 to 6 months’ worth of income in so you can get your hands on it if you need to.
Next consider splitting the rest of your savings, and fix each chunk for the length of time that makes sense for you. For example you might have money earmarked for a new car this summer, or a holiday next ski season. Bear in mind the longer you fix each portion of your savings for, the more interest you could potentially earn, but you’ll lose flexibility over access. You’ll need to find the right balance for your specific needs.
Managing savings across a number of banks and savings products can be a lot of hassle, and most of us just don’t have the time. That’s why we created Active Savings. It lets you choose savings from a range of different banks and building societies, all through the convenience of one online account.
There’s easy access and fixed term savings up to 5 years to choose from, with rates up to 2.55% (AER/Gross) so you can manage your savings in a way that suits you. And once you’re set up there’s no paperwork or forms to fill in, so you can move your money around with just a few clicks.
So why not join Active Savings and improve the way you save?
This article is aimed to help you make informed decisions but this is not personal advice. If you’re not sure whether a savings product is right for you, seek advice. Inflation reduces the spending power of cash over time.
AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. The AER allows you to easily compare the interest rate on savings products. You may earn less than the AER if your money is not invested for as long as a year. AER is calculated based on a Gross interest rate, which is before any tax is deducted.
Gross means the interest rate before any tax is deducted. Tax will not be deducted from your interest. You are responsible for paying any tax due to HM Revenue & Customs.
This is issued by Hargreaves Lansdown Asset Management Limited. 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 Payment Services Regulations 2017 with firm reference 751996 for the provision of payment services. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).