Martin Lewis issues urgent savings warning after Bank of England announcement – do you need to take action?
MARTIN Lewis has issued an urgent savings warning following the Bank of England announcement.
The Bank of England's Monetary Policy Committee (MPC) opted to hold the current base rate at 5.25% earlier this week.
It marks the first time since December 2021 that the central bank has voted not to raise rates.
But Martin Lewis has warned that this could have an effect on savings rates.
This is because the base rate is used by the central bank to charge other banks and lenders when they borrow money.
This directly influences what borrowers pay to borrow and what savers earn in interest.
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The founder of MoneySavingExpert.com, said: "The Bank of England voted to maintain interest rates at 5.25%, not to increase them as many predicted.
"It's therefore possible fixed rate savings providers may shave down their rates at speed (as they're based on longer-term predictions of interest rates).
"If so, and you were looking to lock in a fix, you'll want to open a top fix this minute as the rates could drop, even by later today, certainly if it does happen by later this week.
"Tactic to play it both ways: Open the fix today, but don't fund it (you've usually seven to 14 days to do that).
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"Just hold it so you've got it available and you can wait and see what happens to rates.
"If they go the other way, just don't fund the facility you've opened now – that's not a problem."
It comes after savings rates hit a 15-year high, according to MoneyFacts.
Those looking to lock money into cash ISAs or fixed bonds lasting for a year or more will now find average rates have risen above 5%.
And average easy access account rates and rates on accounts where some notice needs to be given have also hit their highest levels since 2008.
Where can I put my savings?
Right now, Paragon Bank's easy access account pays savers 5.10% and allows for unlimited withdrawals.
This means that those saving £1,000 in the account would earn £51 in interest after 12 months.
But savers could also get a higher rate by locking their cash away in Secure Trust Bank's nine-month fixed-rate bond which pays savers 5.85% back.
This means that those saving £1,000 in the account would earn £58.50 in interest after 12 months.
The only downside to fixed bond accounts is that you're forced to lock away your cash for a defined period of time.
So it's always worth weighing up to see what's best for you.
How can I find the best savings rates?
With your current rates in mind, don't waste time looking at individual banking sites to compare rates - it'll take you an eternity.
Visit comparison websites such as MoneyFactsCompare, Go Compare and MoneySupermarket.
These will help save you time and show you the best rates available.
These sites let you tailor your searches to an account type that suits you.
There are five main types of savings accounts, and understanding the differences can help you narrow down the options.
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- Easy-access savings accounts - usually allow unlimited cash withdrawals. However, this perk means they tend to come with lower interest returns.
- Regular savings accounts - generate decent returns but only on the basis that you pay in a set amount each month.
- Notice accounts - offer slightly higher rates than easy-access accounts but you'll need to give advance notice to your bank (up to 95 days) before you can make a withdrawal or you'll forfeit the interest.
- Fixed-rate bonds - these offer some of the highest interest rates. However, if interest rates increase during your term you can't move your money and switch to a better account.
- Individual savings accounts (ISAs) - these can pay high interest but come with high withdrawal fees. But, Lifetime Isas are great for anyone aged 18-39 hoping to buy a house or save for retirement.
A major rule change means banks and building societies have just weeks to tell customers their savings are earning next to no interest.