UK savers are being urged to set aside inflation-beating savings accounts before interest rates start to fall.
Many fixed-rate savings bonds currently offer yields of 5% or more. These accounts offer a guaranteed yield and can earn you more than twice the current rate of inflation.
But most analysts expect the Bank of England to cut its base rate for the first time in August or September, followed by several more cuts over the next year or two, leading some commentators to argue that the rates currently available may not last for long.
Mark Hicks, savings expert at investment firm Hargreaves Lansdown, said: “This is a fantastic opportunity for savers, so now is the time to jump on the opportunity and get a fair interest rate before the window of opportunity closes.”
Lucinda O'Brien of comparison website money.co.uk has a similar message: “The time to act is now before it's too late.”
Earlier this month it was announced that inflation, as measured by the Consumer Price Index (CPI), had fallen to 2% in May – a stark contrast to the period in 2022 and 2023 when inflation was hovering around 10% to 11%, eating into the value of millions of people's savings.
Many of the highest-yield savings accounts offering interest rates above 5% are fixed-rate deals that require you to deposit your funds for 12 months.
At the time of writing, many banks are offering one-year fixed rate savings bonds with yields of 5.2% or more, including My Community Bank Credit Union and Union Bank of India (UK) (both at 5.22%), Vanquis Bank (5.21%) and Close Brothers Savings (5.2%).
These banks require a minimum deposit of £1,000, while Close Brothers Savings requires £10,000 to open an account.
But Sarah Coles, head of personal finance at Hargreaves Lansdown, says that while a one-year fixed rate account will give you the highest interest, “when it matures you'll need to find another fixed rate account”. [and] There is a good chance that the interest rates offered by then will be significantly lower.”
This is why two-year fixed savings bonds look attractive, she says: “You could consider locking in cash you don't need for two years and making the most of that excellent interest rate while it lasts.”
The two-year fixed rate savings bonds with the highest yields on Thursday were offered by Vankis Bank and Close Brothers Savings, which boasted yields of 5.06% on minimum balances of £1,000 and £10,000 respectively.
Other financial institutions offering two-year fixed savings accounts with best buy interest rates include Hodge Bank (4.97%), Market Harburg Building Society (4.95%) and Atom Bank (4.9%). The minimum deposit amounts at these banks are £1,000, £10,000 and £50 respectively.
“Now is a really sensible time to consider locking in a fixed rate,” Coles says. While the Bank of England is in no rush to cut interest rates, she thinks they are likely to be cut gradually. “By the middle of next year, [rates] It is projected to be 4.5% in 2020 and is expected to reach 4% by mid-2026.”
Rachel Springall of financial data provider MoneyFacts says that even if you haven't reviewed your savings rate in the last six to 12 months, it's a good idea to do so anyway.
Loyalty “isn't always rewarded.” The average interest rate on easy-access accounts at major high-network banks is 2.01%, 0.05% lower than six months ago, according to a June 19 interest rate snapshot.