The Bank of England’s base rate fell to a historic low of 0.1% at the very start of the COVID-19 pandemic, but it was announced last week that the base rate would drop to 0.25 %. On the BBC Money Box podcast, Anna Bowes, co-founder of Savings Champion, explained what the 0.15% increase could mean for savers.
She said: “We have already seen savings rates rise in anticipation of a base rate hike.
“The bottom line is that we have seen increases, but not all banks will increase rates on existing savings accounts.
“In fact, the last time there was a rare basic increase, only 32% of variable rate savings accounts increased, less than half.
“The previous time when the base rate went up, we only saw 50% of the accounts go up.
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“The answer is sometimes there will be price increases and sometimes not.
“The key is if you already have a savings account, you need to take a look at what your bank will do for you and go from there.”
When the base rate is attractive, banks are generally quick to lower their interest rates, but when the base rate rises, many argue that it takes a while for interest to rise.
Ms Bowes continued: ‘Maybe things will change in the future, but I’m not holding my breath on this.
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With inflation above five percent, many people will see their money lose value over time because savings rates can’t beat that percentage.
However, presenter Paul Lewis mentioned that he had seen savings accounts with tempting 5% offers.
Ms Bowes explained that these offers come from regular savings accounts and are usually fixed for 12 months or a certain term.
She explained that within 12 months there is normally a maximum amount one can contribute to the account.
She said: “The one you are talking about has a maximum of £250 and you must be an existing customer of that supplier which is Cambridge Building Society.
“Now [savings in] this construction company [account] will earn five percent because it will be deposited for 12 months, but the next payment you make will only be deposited for 11 months and so on.
“While you will get 5%, it will only be for a short period of time, so it’s not that much.
“But if you’re saving regularly, you can’t get any better than that, so I’m not going to hit it.”
Rachel Springall, financial expert at Moneyfacts.co.uk also commented on the base rate hike.
She suggested savers “act quickly” in order to take advantage of the offers made available.
High street banks may not match the base rate on easy access accounts so it has been suggested to look to other accounts or banks.
She said: “Savers with their money in a flexible account may have noticed that the year has been very volatile with interest rate changes outside of any base rate changes.”
