Savings rates continue to fall amid another interest rate freeze

Savers have enjoyed a year of attractive returns, but experts warn that now is not the time to take your eyes off the savings market as deals decline amid the latest interest rate freeze.

The Bank of England has held the base rate at 5.25% again- the fourth time it has been frozen since August 2023, as the fight to keep inflation under control has calmed slightly. 

As a result, we saw the best savings deals reach their peak last year, and they have now started to dwindle from just over 6% (for example NS&I’s one-year fixed bond) to the 5% mark. 

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

This will be the seventh month where the 5.25% base rate remains, and we can expect savings to continue on a downward trend- but rates still remain historically high. 

Mark Hicks, head of active savings at Hargreaves Lansdown reassures savers that current rates “were the stuff of dreams for more than a decade, so don’t let the talk of rate drops put you off switching or fixing, and taking advantage while you still can.”

We explore the outlook for the savings market and the top deals left. 

Savings rates are falling 

Let’s start on a high- more than 900 savings accounts still beat inflation (currently at 4%)- but you will need to grab these deals fast before they slip out of your hands. 

BoE’s 14 interest rate hikes pushed inflation down to 3.9% in November 2023, which took the pressure off increasing the base rate further. Inflation rose to 4% a month later though.

Whilst this is great news for borrowers, savers will take a hit as lenders continue to drop their rates on the best savings accounts. 

MoneyWeek has been tracking the savings market. Here’s what has happened since the last interest rate freeze on 14 December. 

Easy-access savings

• One easy-access deal was pulled by Beehive Money
• Seven lenders dropped their rates, with two deals falling below 5%

One-year fixed savings

• Six one-year fixed deals have been withdrawn
• 40 Providers have dipped their rates, with 9 products falling below 5%, and one deal even reaching the 3% region

Easy-access savings are falling at a steadier rate than fixed savings. Some big deals we have seen taken off the market include Metro Bank’s 5.66% AER one-year fixed bond as we started the new year. 

Plus, the challenger bank’s easy-access saver plummeted from 5.22% to 4.51% AER in mid-January.  

What are the best savings rates on the market right now?

Experts warn savers to bag the best saving deals on the market before they disappear. 

Myron Jobson, senior personal finance analyst at interactive investor, reiterates: “The simple message for savers is: get a move on to nab the best deals before they’re gone.”

Here are the top deals on the market right now: 

If you’re someone stuck saving with a high-street lender, there’s more of a reason to make the switch now and ditch your 1% savings, as you can earn more than 5% as it stands.  

Will interest rates fall in 2024? 

Most experts predict that the Bank of England will cut the base rate in the second half of 2024, which will push savings rates down even further. 

“The best savings rates are seemingly on borrowed time due to the anticipation of cuts to interest rates later in the year”, Jobson adds. 

You can see returns on the top easy-access account is higher than if you fix for a year. Hicks puts this down to predictions of interest rate cuts in the second half of the year, “as banks price in the rate cuts they’re expecting.”

He adds: “If you don’t need the cash for a year or more, you may be tempted to hold it in a variable rate account for a higher return in the short term. 

“However, in the coming months, there’s a high chance that rates will fall, so if you don’t need the cash right now, fixing and guaranteeing the return for a year or more may well prove more rewarding."