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Interest rates hold at 5.25% and inflation falls to 3.4% – what it means for savers

As top savings rates currently beat inflation, we look at what could be next, and what you should do about it.
Bank Of England Press Conference.jpg

Important information - 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.

The Bank of England has held interest rates at 5.25%.

While not much of a surprise, it might be disappointing for some that interest rates are staying high. It is however, paired with the good news that inflation dropped to 3.4% in February.

But, what does all this mean for savers?

This article isn’t personal advice. If you’re not sure what’s right for your circumstances, seek advice.

Savings rates can beat inflation

Falling inflation can be good news for savers. It makes it easier for cash returns to beat inflation, not just limit the damage to spending power.

For example, if you have £100, and inflation is 3%, that means your real value at the end of a year would be £97. But if you locked that money in an inflation-beating 5% savings rate, the real value of your money would be £102.

There are two sides to every coin though. As typically, falling inflation means interest rates could also be on their way down.

Where are savings rates now?

The good news is, after a steep decline at the start of the year, fixed savings rates have stabilised.

Actually, over the past few weeks, the best one-year fixed rates have gone up slightly. And as the tax year draws to a close, competition for Cash ISAs has intensified. Causing the top fixed Cash ISA rates to rise, and most staying above 4%.

The Bank of England is still expected to drop the base interest rate this year. So, savings rates will likely keep falling back.

But the slow decline to date means if you haven’t locked in a 5% rate already, there’s still time.

Not ready to lock your money up for a year or more? You can still fix your money at over 5% for between three and nine months.

You can’t usually withdraw your money from fixed term savings until the term has ended. So before fixing, make sure to have rainy-day savings you can access easily for emergencies.

And for that emergency pot, easy-access rates have also stayed high. With over many still comfortably beating inflation.

What's right for me?

As with any savings account, your choice should meet your personal needs.

If you’ve already taken advantage of high savings rates, you might be concerned about tax on your savings. In fact, over 2.5 million people are estimated to pay savings tax this year.

So the fact that competitive Cash ISA rates are still beating inflation makes it an even more attractive prospect.

A Cash ISA lets you shelter up to £20,000 free from UK tax every tax year as part of your overall ISA allowance.

With the HL Cash ISA, you can spread your allowance across fixed-rate and easy-access savings offered by different banks. All through one online account, all in the same tax year.

Act before 6 April to make the most of this year’s allowance.

ISA and tax rules can change and their benefits depend on your personal circumstances. Products can be added or withdrawn at any time, so check our website for the latest.

Even more ways to beat inflation.

Over the long term, investments offer the chance to outperform savings. So, if you don’t need to access the money for five years or more, you might consider investing to keep fighting inflation.

Unlike the security of cash, investments can rise and fall in value, so you could get back less than you invest.

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).

Photo by Anna Gordon - WPA Pool/Getty Images

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Written by
Guy James
Guy James
Personal Finance Writer

Guy is a savings specialist, passionate about encouraging people to get to grips with their cash. An integral part of our Active Savings team, he aims to help as many people as possible secure their financial safety net, and make more of their cash.

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Article history
Published: 21st March 2024