Don’t wait for a base rate rise

25th July 2018

If you’ve been holding out for a base rate rise - you’re probably earning next to nothing

We’ve heard it so many times now, but as we approach the next MPC meeting on 2 August, many are predicting that the Bank of England base rate rise will finally happen – meaning the first true increase in almost a decade. Savers have been waiting for long enough!

But while this would be a really welcome move, savers can’t take anything for granted as providers rarely increase rates by as much as they might hope.

Added to that fact is that many people may have been holding out for a rise that has yet to come.

Currently 81% of cash is now held in easy access accounts (up from around 60% before the Funding for Lending Scheme was introduced), with a lot of that likely to be in anticipation of better rates going forward.

Many savers are simply missing a trick and missing out on valuable interest.

Back in December 2012 (before the effects of the Funding for Lending Scheme really took hold), when the base rate was at 0.50%, as it is today, the average live easy access account was paying 0.74%.

Today, that average rate is just 0.41%. And this is up by just 0.06% since September 2017, even though the base rate has risen by 0.25% in that time.

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The average rate of closed easy access accounts in December 2012 was 1.03% - today it is just 0.48%, up from 0.38% in September 2017.

This harsh environment for savers was caused, in the main, by the introduction of the Funding for Lending Scheme (FLS) in 2012 when providers were given access to very cheap funding from the Government, further exacerbated by the introduction of the Term Funding Scheme (TFS) and a base rate drop in August 2016.

The good news for savers is that the FLS tap was switched off at the end of January 2018 and access to the TFS ended in February 2018, so perhaps providers will start to need funds from savers once more. We’ve perhaps seen evidence of this with the re-entry into the best buy tables of Birmingham Midshires on the 13th July (part of the Lloyds Banking Group).

This, as well as a couple of Bank of England base rate rises, will hopefully make a real difference.

However, although highly unlikely, even if the banks and building societies were to raise the rates on all accounts by the same level as the rise in the base rate, many savers will still be worse off in comparison to five years ago, especially if they are with a high street bank, many of which have cut their rates to the bone.

So, whilst we are waiting for these positive things to happen, the best way to minimise the pain is to shop around and move your cash if you could do better elsewhere.

Competition has been rife over the last year or so and best buys have increased steadily, without a true base rate rise.

If you are unlucky enough to be in one of the rock bottom accounts paying just 0.10% or less, by switching today to the best unrestricted easy access account, you could increase the interest you are earning to at least 1.35% gross – more than five times that of a base rate rise of 0.25%.

Take a look at our table below to see how much better off you could be by switching your savings from your bank.

Easy Access Current rate Interest earned based on amount deposited    How much more interest earned on top easy access rate (1.35%)
Provider/Account Name AER % £50,000 £85,000   £50,000 £85,000
Lloyds – Easy Saver  0.20% £100.00 £170.00   £575.00 £977.50
HSBC – Flexible Saver 0.05% £25.00 £42.50   £650.00 £1,105.00
NatWest – Instant Saver * 0.20% £100.00 £170.00   £575.00 £977.50
Barclays – Everyday Saver ** 0.25% £125.00 £212.50   £550.00 £935.00
Santander – Everyday Saver 0.25% £125.00 £212.50   £550.00 £935.00
Best unrestricted Easy Access Rate - Birmingham Midshires (1.35%) 1.35% £675.00 £1,147.50      

Rates based on £50,000 and £85,000 deposited

NatWest Instant Saver is a tiered account.
£1-£24,999 = 0.10%
£25,000-£999,999 = 0.20%
£1,000,000+ = 0.25%

** Barclays Everyday Saver is a tiered account
£1-£49,999 = 0.20%
£50,000+ = 0.25%

1 Year Fixed Rate Bond Current rate Interest earned based on amount deposited    How much more interest earned on top easy access rate (2.10%)
Provider/Account Name AER % £50,000 £85,000   £50,000 £85,000
Lloyds – Fixed Bond 1 year None N/A N/A   N/A N/A
HSBC – Fixed Rate Saver 1 Year * 0.60% £300.00 £510.00   £750.00 £1,275.00
NatWest – 1 Year Fixed Term Savings Account ** 0.95% £475.00 £807.50   £575.00 £977.50
Barclays – 1 Year Fixed Rate Bond 0.90% £450.00 £765.00   £600.00 £1,020.00
Santander – 1 Year Fixed Rate Bond 0.50% £250.00 £425.00   £800.00 £1,360.00
Best 1 Year Fixed Rate Bond - Hampshire Trust Bank (2.10%) 2.10% £1,050.00 £1,785.00  

HSBC Fixed Rate Saver 1 Year Saver is a tired account.
£2000-£49,000 = 0.50%
£50,000+ = 0.60%
** NatWest 1 Year Fixed Term Savings account is a tiered account
£5,000-£49,999 = 0.90%
£50,000-£500,000 = 0.95%

Rates correct as of 25 July 2018.


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