Some banks are passing the increase on to their customers while others are keeping their interest rates unchanged, prompting many people to look around to see if they can get a better rate. Express.co.uk spoke to banking experts to ask what steps savers can take to ensure they get the best rate, and any potential issues to be aware of, for those who regularly move their savings.
Victor Trokoudes, CEO and co-founder of smart money app Plum, said now is a good time to check his savings and see if there’s a better deal.
He said: “For savvy savers who are able to act quickly, this is an opportunity to maximize rising interest rates on savings accounts.
“Things change quickly, so it’s a good idea to regularly check which financial companies offer the best rates.
“How often you do this will depend on your own financial situation, for example, how much money you have available for travel in the short term.
“Now is a really good time to do a full MOT of your wealth so you know exactly how much you have already saved, how much more you can save per month, and that you already have a decent amount set aside as savings. emergency in any easy-to-access account.
“With these things ready, you’re in a good position to start looking for an interest rate that’s right for you.”
He said there would likely be further base rate hikes as the Bank of England struggles to tackle soaring inflation, which hit a record 11.1% this month , with a rate potential of 4 or 5%.
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However, he also warned that as Britain heads into a recession the central bank may need to cut 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: ‘Most rates are likely to go up to some degree, but if your money is in an easily accessible account it is unlikely that this increase will be enough to make much of a difference to your wallet.
“Banks don’t have to raise their interest rates when the base rate goes up, and you’ll find that even the best rates offered are lower than the 3% base rate.
“It’s worth looking to smaller banks and fintechs for better rates, as they tend to be more flexible and competitive.
“For example, at Plum, we were able to quickly raise our interest rates so that our customers could 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.
DO NOT MISS
The savings expert said: “Some things to watch out for include restrictions on withdrawals, rapidly decreasing ‘bonus rates’, minimum initial deposits which could prevent you from receiving much interest, maximum deposits or withdrawals or minimum, or any restrictions on the timing of deposits or withdrawals.
“There are also market interest rates where ‘interest’ is paid as a bonus; the genuine interest will be added directly to your savings so you can then earn interest on the interest, otherwise known as compounding.
“The compounding effect can be very powerful, so it’s a good idea to check that any interest you earn is capable of doing this.
“As always, it is important to check that all your savings in the account will also be fully protected by the FSCS.
“Also, just keep in mind the potential low impact on your credit score if you switch checking accounts 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 rating impact of switching accounts is usually minimal.
“That said, if you’re about to apply for a large mortgage or loan, it may be best not to move your bank account until the application process is complete.”
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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 build better savings habits, the easiest way is to set aside a few minutes each month to check comparison websites and get an idea of the best rates and deals available. .
“The more routine it can be made of, the better, so creating a recurring schedule or phone reminder, ideally for a time when 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 changing more frequently, as the savings market can move quickly and getting the right deal at the right time could guarantee better returns. .”
For those who don’t want to move their funds so frequently, he offered these tips:
- Look for banks that have a history of offering competitive rates and passing on increases to existing customers as well as new savers.
- Find out if your current savings provider has more or better options that could improve returns.
He warned that there is no easy way to predict when banks will change their rate and that raising the base rate does not mean all rates will go up.
He explained: “Despite numerous base rate increases this year, many leading banks have only passed on a fraction of the total 2.9% increase to their saving 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 savings accounts should consider savings options that combine a high interest rate, good service, a level of accessibility that suits them, and tools to manage their money easily. “
As for potential problems with moving savings, Mr Blower also warned that some banks do credit checks for people opening a checking account, such as whether the bank gives an interest-free overdraft.
He said: “However, it is important that people consider their accessibility needs and when they might need their funds again to avoid hardship or financial penalties and fees.
“Fixed-term savings accounts, for example, often offer higher fixed interest rates, but the money must be held in the longer-term account.
“If you are unsure of when you might need your savings, it may be best to consider an easy-to-access savings account or a shorter fixed term that combines a competitive interest rate with less or no access limits.”