But loyal high street savers will still be missing out if they don’t switch – even if their rate rises by the full base rate rise
As widely predicted and at long last, for the first time in a decade, the Bank of England has today raised the base rate from 0.25% to 0.50%.
Savers who have suffered years of rock bottom interest rates will be cheered by today’s news, but while we wait to see how providers respond, as always, our advice is to remain active to achieve the best rates now.
We’ll have to wait and see if the full rise is extended to all variable rate accounts – but it’s unlikely. And while the base rate rise takes immediate effect, any increases to your savings rates are likely to take a little longer to filter through.
Even if your provider does pass on the full rate rise, if your savings are languishing in a high street account, you could still be getting a really raw deal.
For example, NatWest and HSBC are both currently paying easy access customers just 0.01% gross/AER. If they pass the full 0.25% base rate rise to these customers, on a balance of £10,000, the interest earned will increase from £1 per annum to £26 gross per annum.
However, a savvy saver in the RCI Bank Freedom Savings Account or the Birmingham Midshires Online Saver will currently be earning £130 gross per year (1.30% gross/AER) – still over £100 more than with NatWest or HSBC after a 0.25% rate rise.
This highlights that it’s more important than ever to vote with your feet and earn as much interest as you can elsewhere, using all the tools in your armoury – including high interest paying current accounts.
Nationwide, for example offers 5% AER on balances of up to £2,500 (there is no interest payable on the balances above this) – but this rate includes a bonus of 4% for the first 12 months – and you need to deposit a minimum of £1,000 each month to qualify for the bonus.
Tesco Bank and TSB Bank pay 3% AER on balances of up to £3,000 and £1,500 respectively – but again you need to make a minimum deposit each month, along with meeting some other terms and conditions, such as setting up direct debits and registering for internet banking.
Apart from high interest paying current accounts, the best rates available are likely to be offered by lesser-known providers – but as long as they are covered by the Financial Services Compensation Scheme (FSCS) or equivalent and you stick within the limits, it may be time to take a leap of well-informed faith to get a better deal. For more information, please look at our FSCS Guide
So, our advice is that while a base rate rise is great news for savers, don’t assume your provider will pass on the rate rise; Keep active to ensure you are getting the best rate. If your savings are with a high street provider then switching to a best buy account today will significantly increase the amount of interest you earn.
For more information about which savings account is right for you and how much more you could be earning, call one of our savings experts on 0800 0119 705 today.