The era of near zero interest rates is ending, but are your savings benefiting?
The Bank of England raised its base rate again in June, pushing the figure up to its highest level in 13 years at 1.25%.
The Bank’s ratcheting up of interest rates has started to permeate through to the interest paid on savings, although it has often been loan rates which have increased earlier and faster. Unfortunately, you cannot assume that your existing savings accounts have benefitted from the 1.15% rise in the base rate since last December. The banks now have a rare opportunity to expand their margins by widening the gap between deposit and loan rates.
This strategy can be seen most clearly when it comes to accounts closed to new savers. For instance, the rate on Halifax’s 60 Days Gold account remains at the 0.01% level to which it fell in July 2020. Switch the money across to a Halifax Everyday Saver account and the interest rate is 0.25% (as of 14 June 2022), with instant access.
At a time of economic uncertainty, when you may wish to build up your cash reserves, you need to look beyond the familiar brand names to find a return that beats the Bank of England base rate. Currently the best instant access rates are around 1.55%.
Contrary to what you might expect, cash ISA rates may be lower than non-ISA rates. National Savings & Investments provides a good example: its Direct ISA pays 0.15% less than its Direct Saver account. While an ISA is UK tax-exempt, in practice the personal savings allowance means you can earn £500 interest tax-free if you are a higher rate taxpayer (£1,000 if your top rate of tax is less).
The Financial Conduct Authority does not regulate tax advice or National Savings & Investments.
Tax treatment varies according to individual circumstances and is subject to change.
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