Families have been told to get ready for an imminent interest rate hike.
The Bank of England has given its clearest warning yet that rates will have to rise soon to keep a lid on soaring inflation following a surge in energy prices.
But while some experts forecast that the base rate could rise from its all-time low of 0.1 per cent before Christmas, others think it could be longer before any increase is announced.
The Bank of England has given its clearest warning yet that rates will have to rise soon to keep a lid on soaring inflation following a surge in energy prices
With interest rate changes notoriously hard to predict, this leaves savers in a quandary as to what to do with their money.
Should they hold off investing in a fixed-rate bond in case rates go up? Or should they grab a top fixed deal now to avoid missing out on extra interest in the meantime? The consensus among experts is not to wait.
Fixed-rate deals have edged up in recent weeks, with the best one-year bond now paying 1.33 per cent compared to just 0.6 per cent on easy-access accounts. There is also no guarantee that savings deals will rise in line with any increase to the base rate, as they have previously.
Instead, returns are being driven up by fierce competition between smaller banks, which are keen to attract money to fund lending.
And this has pushed up rates despite the base rate remaining at 0.1 per cent.
Kevin Mountford, co-founder of savings platform Raisin UK, says: ‘Don’t wait for any change in the base rate as savings rates no longer reflect it. Any increase will get passed on to borrowers faster and at a higher rate than to savers.’
James Blower, of Savings Guru, adds: ‘Competition among the smaller banks has been driving up rates. If you see a good rate, grab it.
While rates have risen in the last couple of months, they are now easing off and there is a danger of more cuts.’
Many smaller banks now pay more than 1.2 per cent on a one-year bond — up from less than 1 per cent in the summer.
You can earn 1.33 per cent with Investec Bank, 1.3 per cent with Oxbury Bank, 1.27 per cent with Charter Savings Bank or 1.25 per cent with Ford Money.
Anna Bowes, director at Savings Champion, says: ‘No one knows what will happen with rates. You could look to lock away some money for one or two years. Notice accounts are also looking competitive.’
If you can give 60 days’ notice before making a withdrawal, Charter Savings Bank pays a variable rate of 0.83 per cent and Secure Trust 0.8 per cent.
With 30 days’ notice, they pay 0.7 per cent. And last week Family Building Society launched a 90-day notice account at 1.06 per cent.
Coventry Building Society pays the best easy-access rate at 0.65 per cent, but you are limited to four withdrawals a year.
Marcus and Charter Savings Bank pay 0.6 per cent with no restrictions. One thing savers must not do is leave their cash with big banks paying just 0.01 per cent.