On November 2nd we saw the long awaited rise in interest rates come into effect. This was the first rise we’ve seen in ten years, taking the Bank of England’s Base Rate from 0.25% to 0.5%.
Those likely to benefit the most are the 45 million savers across the UK1, and with this in mind we wanted to take a look in more detail to see what’s likely to happen both now and in the future.
We’re also going to explore what you should look out for when selecting a savings account, if one of your goals for 2018 is to put more money aside.
What does it mean for savers?
The base rate is the Bank of England’s official borrowing rate, which influences both what borrowers pay and also what savers can earn. Now that interest rates have risen, it’s expected that the banks and building societies will begin to pass this on to savers by increasing rates on savings accounts.
The rise in interest rates might not be immediate but a few of the banks and building societies have already started. Nationwide, TSB, Skipton and Yorkshire Building Society were the first, with Yorkshire Building Society increasing rates by the full 0.25%.
To put this into perspective, an average easy-access savings account currently pays 0.14%. This means if you had £10,000 put aside you’d be earning £14 a year. If the rate rise was then fully passed on, you’d be earning an extra £25 a year, taking the total up to £39 2
This is good news, as these increases will help savers earn more from their savings after years of very low interest rates.
Not all banks and building societies have been clear about their plans just yet and rises in savings rates across the board are likely to start coming in next year, so it’s a case of watch this space.
According to the Bank of England’s governor Mark Carney, interest rates will rise two more times over the next three years, so hopefully the future will continue to be brighter for savers.
What should you consider when looking for a savings account?
What are you saving for?
Have a think about what you’re saving for, as there’ll be better accounts for different things:
- Need to access your savings? If you’re putting money aside for an emergency fund, which you may need to access, consider an instant access account
- Don’t need access to your savings? If you’re putting money aside for a deposit for your first house and happy to not touch the money for a set time, consider a fixed term savings account
Different accounts will offer different interest rates, so make sure you shop around.
You may see some accounts offering a high bonus rate, but be careful, as these bonuses only last for a short amount of time. If you’re happy to move your money to another account once the bonus period ends, you could reap the rewards. However, you need to keep on top of things, as after the bonus period, the interest rate can drop quite a lot. For a savings account with less maintenance, consider an account with a fixed rate.
How will you pay into your savings?
If possible, set up a direct debit so you’re paying a set amount into your savings account each month, as this could really help you get to where you want to be. You could also potentially earn more from your savings by doing this, as accounts like regular savings accounts often offer higher rates of interest.
What initial deposit will you be paying in?
Each savings account will have a minimum investment amount, ranging from as small as £1, right up to £100,000.
If you’re lucky enough to have a significant amount of money to put aside, look out for accounts with higher minimum investment amounts, as you’re more likely to get a better interest rate.
And no matter how much you have to open a savings account, opening it sooner rather than later means you can start to feel the benefit. Use these tips so you can shop around and then start 2018 off on a great note, knowing you’re putting some money aside and planning for the future.
1 Statistic taken from: http://www.bbc.co.uk/news/business-41846330
2 Example taken from: http://www.bbc.co.uk/news/business-41831777