Some banks are passing on the increase to their customers while others are keeping their interest rates as they are, prompting many people to look around to see if they can get a better rate. Express.co.uk has spoken to banking experts to ask what steps savers can take to make sure they are getting the best rate, and any potential issues to be aware of, for those who are regularly moving around their savings.
Victor Trokoudes, CEO and co-founder at smart money app Plum, said now is a great time to check over one’s savings and see if there’s a better deal out there.
He said: “For savvy savers who are able to move quickly, this is an opportunity to maximise on rising interest rates on savings accounts.
“Things are changing fast, so it is a good idea to regularly check which financial companies are offering the best rates.
“How frequently you do this will depend on your own financial circumstances, for example, how much money you have available to move around at short notice.
“Now is a very good time to do a full MOT of your wealth so you know exactly how much you already have saved, how much more you can save per month, and that you have a decent amount set aside already as emergency money in any easy-access account.
“With those things ready, you’re in a good position to start shopping around for an interest rate that works for you.”
He said there will likely be further increases to the base rate as the Bank of England works to tackle soaring inflation, which reached a record 11.1 percent this month, with potential for rates of four or five percent.
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However, he also warned that as Britain heads into a recession, the central bank may need to reduce rates to encourage spending.
He warned savers not to take it for granted that their current bank will give them a good interest rate.
Mr Trokoudes said: “It is likely that most rates will rise to some degree, but if your money is in a high street easy-access account, it’s unlikely that that increase will be enough to make a big difference to your wallet.
“Banks are not obliged to increase their interest rates when the base rate rises, and you’ll find that even the best rates on offer are less than the three percent base rate.
“It is worth looking at smaller banks and fintechs for better rates, as they tend to be more flexible and competitive.
“For example, here at Plum, we have been able to quickly raise our interest rates so our customers can get the maximum benefit.”
He also warned savers to make sure they read the terms and conditions in full as many attractive products may in fact not be suitable.
The savings expert said: “Some things to look out for include any restrictions on withdrawals, ‘bonus rates’ that quickly reduce, minimal initial deposits which might prevent you receiving much interest, any maximum or minimum deposits or withdrawals, or any restrictions on the timing of deposits or withdrawals.
“There are also some interest rates on the market where the ‘interest’ is paid as a bonus; true interest will be added directly to your savings so you can then earn interest on the interest, otherwise known as compounding.
“The effect of compounding can be very powerful, so it’s a good idea to check that any interest you are earning is able to do this.
“As always it’s important to check that all your savings in the account will be fully protected by FSCS too.
“Also, just be mindful of the potential small impact on your credit score if you switch your current account to access a better savings rate.
“That’s because lenders like to see long relationships with financial providers as a sign of stability. However, the credit score impact of switching your account is usually minimal.
“That said, if you’re about to apply for a mortgage or sizable loan, it may be better to hold off moving your bank account until the application process has completed.”
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James Blower, Head of Savings at Zopa, encouraged savvy savers to regularly set aside time to research the best deals.
He said: “For people looking to create better habits around savings, the easiest way is to set aside a few minutes every month to check comparison websites and get a feel for the best rates and deals available.
“The more one can make it routine the better, so creating a recurring calendar or phone reminder, ideally for a moment you know you’ll have the time and focus to do it, will help make it a habit.
“Those with larger savings balances could benefit from checking rates and switching more frequently, as the savings market can move fast and getting the right deal at the right time could ensure better returns.”
For those who don’t want to move their funds around that frequently, he offered these tips:
- Look for banks that have a track record of offering competitive rates and passing increases through to existing customers as well as new savers.
- Find out if one’s current savings provider has more or better options that could improve yields.
He warned that there is no easy way to predict when banks will change their rate, and that the base rate increasing does not mean all rates will go up.
He explained: “Despite the many increases to the base rate this year, many high street banks have passed on merely a fraction of the total 2.9 percent increase to their savings customers.
“These banks also tend to offer lower interest rates on savings accounts compared to newer banks, which tend to adjust rates more frequently.
“In general, a consumer switching their savings account should consider savings options that combine a high interest rate, good service, an accessibility level which suits them, and tools to manage their money easily.”
With regard to any potential problems with moving savings around, Mr Blower also warned that some banks carry out credit checks for people opening a current account, such as if the bank provides an interest-free overdraft.
He said: “It is important though that people consider their accessibility needs and when they may need their funds again to avoid difficulty or financial penalties and fees.
“Fixed term savings accounts, for instance, often offer higher, fixed interest rates, but the money must be held in the account for a longer term.
“If you’re not sure when you may need your savings, it may be better to consider an easy access savings account or a shorter fixed term that combines a competitive interest rate with fewer or no access limits.”