Anyone who has savings in a variable rate bank account is being urged to take action as soon as possible following the Bank of England’s decision to cut interest rates on Thursday.
Senior economists at the Bank of England have reviewed the UK’s base interest rate and announced it will reduce from its current 4.25% to 4%.
For many variable or tracker savings accounts, which closely follow base rates, this means the amount of interest you earn will immediately drop to match the base rate cut. For example, Chase bank’s tracker currently tracks 1.5% below the base rate, meaning your savings rate will reduce from 2.75% to 2.5% by next Thursday. According to Chase’s terms and conditions, its variable savings rate will always change within five days of a base rate change. The same will be true for anyone with a tracker savings rate, though the timeframe for changes will differ with different banks.
Coventry Building Society warned last time savings rates were cut: “Timing will be crucial if you’re hoping to maximise your savings in the longer term. Securing a favourable rate by opening a new fixed rate ISA or bond could make a significant difference to how much your savings will grow.
“The higher the interest rate, the more you’ll earn in interest on your savings, over time.
“Put simply, if you’re putting money away for a holiday, a new car or a special occasion like a wedding, securing a fixed rate savings account now could help you to reach your savings goal more quickly than if you were to open an account after rates have fallen.”
But the best strategy is to lock in a fixed savings rate, where possible. There are several accounts currently on the market which will give savers a higher interest rate than the current Bank of England rate, fixed for 12 months or more.
Investment platform Hargreaves Lansdown says: “For those looking to get ahead of any potential cuts in 2025, you could think about locking in rates so you’re not exposed to further falls in the easy access market.
“You’ll usually get a higher rate, and because the rate is fixed, you’ll know exactly how much interest you’ll get at the end…Just remember, unlike easy-access accounts, you can’t usually access your money once it’s fixed until the term ends.”
Right now, Vanquis Bank has a one-year fix offering savers 4.44% interest. This is locked in for 12 months, so you can’t access your money, but it’s not variable – it means you’re guaranteed to get that rate for at least 12 months, even if the Bank of England cuts rates again.
Other accounts include Zenith, at 4.47%, and NS&I (of Premium Bonds fame), which offers 4.18%, all higher than the new 4% rate, all guaranteed for one year.
For an ISA, there’s Cynergy’s Cash ISA, fixed for 12 months at 4.3%, and Vanquis, at 4.27% for 12 months. Virgin Money also has a Cash ISA fixed for 12 months at 4.16%.
For a two-year fix, there’s also JN Bank, at 4.45%, and Cahoot (from Santander) with 4.1%. For a two-year Cash ISA, there’s Cynergy at 4.2% and United Trust at 4.19%.
All of these are higher than the current 4% interest rate from the Bank of England, and are guaranteed not to change for the duration of the fix.
