As interest rates on the horizon, UK savers are being warned to act now to maximize their returns, with competitive fixed-rate savings accounts still available despite expected rate cuts.
UK Savers Urged to Act Now Before Interest Rates Start Falling
With a Bank of England interest rate cut considered a near-certainty, experts are warning savers against ‘apathy’ when it comes to their savings accounts. Despite expected rate cuts, there are still competitive products available for those looking for better deals.
Interest rates are the percentage at which an amount borrowed is paid back to the lender.
Central banks set benchmark interest rates, influencing borrowing costs for consumers and businesses.
Low interest rates stimulate economic growth by making loans cheaper, while high rates slow down spending and investment.
For example, in 2020, the US Federal Reserve lowered interest rates to near zero to mitigate the effects of the COVID-19 pandemic on the economy.
Competitive Fixed-Rate Savings Accounts Remain Available
Competition between providers means that savers can still obtain easy access and fixed-rate savings accounts paying more than 4.5%. The top-paying one-year fixed-rate bonds from Cynergy Bank and Tandem Bank were paying a rate of 4.55% at the time of writing.
However, getting the very best rate often requires going with a smaller or less well-known provider. Fixed-rate savings bonds, which involve tying up your money for between six months and five years, typically offer some of the highest rates and provide a clear, guaranteed return.
The Importance of Regularly Reviewing Savings Rates
Experts are warning savers that falling interest rates will have disastrous news for them, making it essential to regularly review the rates on their savings pots. Apathy can lead to savers making the wrong choices, such as leaving money languishing in a current account earning no interest or only a poor return.
Savers are individuals who prioritize saving money and building wealth over spending it.
Research shows that savvy 'those who prioritize saving' tend to have lower levels of debt, better financial stability, and increased economic security.
According to a study by the Federal Reserve, households with savings rates above 10% were less likely to experience financial stress during economic downturns.
Savers also tend to invest more in retirement accounts, such as 401(k)s and IRAs, which can provide long-term financial benefits.
Rachel Springall, an expert at Moneyfacts, said: ‘The Bank of England base rate is expected to fall further this year, which will be disastrous news for savers and will make it essential for them to regularly review the rates on their savings pots.’
Choosing Between Easy Access and Fixed-Rate Options
With cost of living pressures still an issue, many savers will be keen to keep their cash close at hand in an easy access account. However, those looking to maximize their returns may want to consider tying up some savings money for longer.
JN Bank UK – part of the Jamaica National Group – was on Tuesday paying 4.48% for a five-year fixed-rate bond. The ‘best-buy’ accounts pay considerably more than 2.78%, but often have restrictions, such as limitations on withdrawals.
A Renewed Sense of Urgency
There is now a renewed sense of urgency to take advantage of higher savings rates before they start to fall. Anna Bowes, a personal finance expert at The Private Office, said: ‘The fact is, there are still some really competitive rates to be had… There are still plenty of inflation-busting accounts.’
Inflation-busting accounts are savings vehicles designed to protect against inflation.
They often offer higher interest rates than traditional savings accounts, making them attractive for those who want their money to grow in value over time.
These accounts typically invest in assets that historically perform well during periods of high inflation, such as commodities or real estate.
Some popular types include Treasury Inflation-Protected Securities (TIPS) and gold-backed accounts.
However, she also warned that getting the very best rate often requires taking on more risk or making sacrifices, such as locking up some savings money for longer.
- theguardian.com | UK savers urged to ‘act now’ before interest rates start falling
