The BoE has hiked interest rates for 14 meetings in a row since December 2021, and last week’s increase lifted bank rate from five percent to 5.25 percent. While this is a nightmare for millions of Britons with unpaid mortgage debt, it has been a boon for savers.
Today they can lock into fixed rates of more than six percent a year from a string of market-leading savings accounts.
However, this is still below inflation, which stood at 7.9 percent in June. This means the value of their money is still being eroded in real terms, which makes it vital to get the best rate they can.
Many will have been hoping to take advantage of last week’s widely anticipated base rate increase, but it’s had almost no impact on the market.
Instead, returns on fixed-rate bonds have been falling rather than climbing.
Less than three weeks ago, challenger bank Vanquis was paying a best buy rate of 6.2 percent a year on its two-year fixed-rate bond.
It didn’t last long but at least FirstSave swooped in with a two-year fix paying 6.15 percent.
That’s now gone as well.
One week ago, Beehive Money and the Melton Building Society both paid 6.10 percent a year over two years.
Not anymore. These deals have been pulled, too.
Today’s best buy fixed-rate bond now pays a lower rate of 6.06 percent, from challenger Cynergy Bank. This can only be opened online with a minimum deposit of £1,000 and maximum of £1million.
It is closely followed by Hampshire Trust Bank and Atom Bank, which both pay a fixed rate of 6.05 percent a year over two years.
Best buy savings rates are sliding even as the BoE hikes. The glory days for savers may soon be over, if they’re not already.
Savers may want to act by grabbing today’s top fixed rates before they are cut further.
It’s odd to see savings rates falling, while the BoE continues to be aggressive about increasing interest rates as it battles to stamp out inflation.
Markets still expect its rate-setting monetary policy committee (MPC) to increase rates to 5.5 percent in September and 5.75 percent in November.
Yet banks are clalculating that we are nearer the peak of the rate hike cycle than we think, and acting accordingly.
They don’t want to commit to paying higher interest rates for two years if interest rates start falling in 2024, as many anticipate. And they really don’t want to lock in today’s higher rates for five years.
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Before last week’s hike, RCI Bank was paying a fixed rate of 5.8 percent a year on its best buy five-year fixed-rate bond.
Today, Cynergy tops the tables paying only slightly more at 5.81 percent. Again, that’s a rise of just 0.01 percent despite last week’s 0.25 percent base rate uplift.
Savers should be grateful to Cynergy for giving it a go. Others are running scared.
Even easy access savings rates appear to have peaked, with best buys from Aldermore, Paragon and Monument stuck at 4.60 percent.
That could change next week, of course. Maybe there could be a rush of new accounts to market, but I’m not convinced.
Banks can see which way the wind is blowing on interest rates. Note how they have started cutting mortgage rates, despite the BoE hike.
Second guessing interest rate movements is always risky. However, savers who are waiting for banks to pay more may have to think again. This could be as good as it gets.
