Although we’ve been saying it for a while, last week the governor of the Bank of England, Andrew Bailey, told MPs at a Treasury Committee meeting that rates were “much nearer the top of the cycle” following last month’s base rate hike, the 14th in a row, to 5.25%.
This comment came alongside his reiteration that he believes inflation is likely to fall significantly this winter, although sticky wages inflation and an increase in petrol prices in August could cause a stubborn and temporary ‘tick up’ in the meantime. Economists are expecting that CPI in August will be up slightly from 6.80% in July, to over 7% once again.
The expectation that the base rate will reach a peak of 6% has receded and in fact some economists are saying that the chances are now that there will be just the one further base rate rise, or even none. That said, most agree that the Monetary Policy Committee (MPC) will raise rates again at the next meeting later this month by 0.25% to 5.50%.
Andrew Bailey told MPs that while previously there had been a time when ‘it was clear that rates needed to rise’ he went on to say that ‘we are not, I think, in that phase any more’.
According to an article in the i, Michael Saunders, a former member of the Bank of England’s Monetary Policy Committee (MPC) – which sets interest rates – said any base rate increase this month would “probably” be the last in the current cycle.
This of course will be good news for mortgage holders, many of whom still have fixed rate deals that are yet to come to an end, but for savers it could mean that now is the time to lock into some of the excellent rates that are currently available, before the base rate peaks and then potentially starts to fall once again.
Best buy rates have risen to extraordinary levels recently, with easy access accounts offering more than 5% and NS&I has triggered a small battle between certain providers after launching the latest issue of its 1-year Guaranteed Growth Bond paying 6.20%. At the time that bond was launched, the top accounts it leapfrogged were all paying 6% but, as the Rates Rundown illustrates, the average of the top five 1-year bonds is now 6.10% with the lowest rate in our best buy table being 6.05% AER.
But with market expectations that the base rate is near the peak, the competition that we have seen could soon start to wane once more.
Don’t put all your eggs in one basket
It’s not just the short-term bonds that savers could be considering. Although Andrew Baily stated that he believes interest rates will remain flat for some time after they peak, with the top savings rates on longer term bonds paying a little less than the shorter term, it’s a clear indication that rates are likely to start to fall again in the next few years, although no-one expects things to become as dire as they were a couple of years ago. So those who opt to lock some of their cash away for the longer term might find themselves earning more in the long run – and if inflation does fall to closer to the 2% target, importantly your cash savings could be earning more than inflation.
The best 3-year bond is currently paying 5.96% with OakNorth Bank, while the top 5-year bond is 5.85% with Tandem, either directly or via the Raisin UK cash platform. The latter has recently reintroduced a welcome bonus to new customers – a £25 bonus paid after six months if you deposit and maintain a balance of at least £10,000 - this can turn a competitive account into a market-leading one!
For example, if you were to deposit £10,000 into the top 12-month bond which is provided by Ahli United Bank paying 6.10%, the £25 bonus could push the effective rate earned up to 6.35% - beating even the NS&I 1-year Guaranteed Growth Bond. Of course the more you deposit, the more this bonus effect is diluted – for example if you were to deposit £20,000, then the effective rate including the bonus would be 6.23% AER – but it’s still good to have that little extra. *
In order to receive the bonus, savers must enter the promo code 'OFFER25' having clicked our unique link, whilst signing up for a new Raisin UK Account, which they must do so before midday on the 25th September 2023. Once your Raisin UK Transaction Account has become active you must apply for and open a savings account within the platform, and fund the account with a minimum of £10,000 by 11:59pm on 31st October 2023.
With the money you might need access to, the easy access market has also been boosted by the recent although short-lived Easy Access Limited Edition account from Santander paying 5.20%. Although this has now been withdrawn there are plenty of accounts that are paying 5% or even a little more. The top paying account is the Paragon Double Access Account Issue 2 paying 5.05% AER although as the name suggests there is restricted penalty free access to this account. If you need more access, you can earn 5.01% AER with Kent Reliance and Monument Bank.
As this illustrates, there are plenty of accounts to choose from that will now pay some meaningful interest and it probably makes sense not to put everything into just one type or term of account, if you don’t need immediate access to the lot. But you need to shop around. Why not sign up for our free Rate Alerts and our Best Buy tables delivery service, to keep yourself up to date with the top rates on offer.
*We are occasionally paid by some providers if you click through from our Best Buy Tables and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).
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