Only 1 in 4 savings accounts beats Bank of England interest rate

Only a quarter of savings accounts are currently offering better rates than the Bank of England’s base rate, new data shows.

Despite the base rate being cut to 4 per cent last month, just 26 per cent of savings accounts are offering rates above this, according to data from Moneyfacts.

There are currently no types of savings accounts on the market where the average interest rate is above this, the data shows.

The top-paying accounts are one-year fixed rate ISAs, which currently pay an average of 3.91 per cent, which is still below the base rate.

The overall average savings rate fell to 3.46 per cent in August, with easy-access savings accounts typically paying just 2.59 per cent.

With inflation standing at 3.8 per cent, this means the majority of savers are effectively losing money held in cash. This is because if prices are rising more than your savings are growing, your money is effectively worth less.

Inflation is also expected to keep rising and peak at around 4 per cent in September, but savings rates are unlikely to rise unless the Bank of England decides to raise its base rate again.

Banks and savings account providers use the Bank’s base rate to set their own savings and mortgage interest rates. If the base rate falls, providers typically lower their rates, and vice versa.

Rachel Springall, finance expert at Moneyfacts, said: “Savers may have assumed that with the Bank of England’s base rate falling, there would be a bigger impact on the pool of deals able to beat base rate, but that is not true.

“Savers are casualties of base rate cuts, and over the past month we have seen variable rates tumble.

“As inflation is expected to climb higher, this means the vast majority of savers will see their pots eroded in real terms,” she added.

“This will be incredibly demoralising for savers who use their interest to supplement their income, and in fact, the situation has been dire for many years.”

What are the best savings accounts right now?

Currently, the best easy-access savings account is from Chip, paying 4.8 per cent interest on anything over £1, according to Moneyfacts.

However, this includes a bonus rate of 1.99 per cent for the first 3 months, after which the rate drops to 2.81 per cent.

Other top accounts include Sidekick Money’s Multi Shield account, which pays 4.43 per cent, including a 1 per cent bonus for the first six months if you deposit at least £10,000.

If you are looking for a more mainstream lender, Shawbrook Bank is currently paying 4.26 per cent on its Shawbrook Bank Flagstone easy-access account, but you need to deposit at least £10,000 to qualify.

You could get a better deal long-term if you are willing to hand over some of your cash for a fixed amount of time.

Ms Springall explained: “Savings providers typically offer more attractive returns to savers who are prepared to lock their cash away for an agreed time, such as with a fixed rate bond or notice account, and less so for accounts where the cash could be instantly withdrawn.”

If you can lock some cash away for a year, you can get 4.5 per cent interest on Chetwood Bank’s one-year fixed rate bond. That means you are guaranteed to get this rate for the whole term.

For slightly shorter terms, you can currently get a 4.42 per cent rate on AlRayan Bank’s 6-month fixed rate bond, or 4.35 per cent on its 9-month bond.

How to get the best savings rates

If your savings account provider lowers your interest rate, do not settle – you could save yourself hundreds of pounds by switching to a better deal.

However, make sure to read the terms and conditions to make sure you will qualify for the headline rate before switching. For example, some accounts require you to deposit a certain amount to get the best rate.

It could also be worth considering a digital bank rather than a high street name, as these often pay better rates to attract customers, but savers are still covered by the same protections.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “There are still some highly competitive easy access deals, especially from online banks and savings platforms.”

If you’re able to, consider locking into a fixed-rate deal. With inflation expected to rise and interest rates unlikely to follow suit, you could save yourself money by getting a guaranteed rate over the next year.

Ms Coles said: “We expect fixed rates to overtake easy access rates in the months to come, as the market normalises and savers are rewarded more for tying their money up.

“It means anyone who doesn’t need a slice of their cash for a year or two should seriously consider tying it up in a fixed rate deal while rates are so strong.”