Best time to lock in a savings rate in 15 years – here are the best deals

savings rates
savings rates

Savers have been urged to lock in the best deals now as a shock pause on interest rate rises risks banks pulling offers within days.

The Bank of England surprised savers and economists on Thursday when it decided not to raise central interest rates for the 15th time in a row – keeping them at 5.25pc.

This will be a relief to homeowners facing high mortgage bills, but savers have been warned that the Bank’s decision could lead to lenders pulling their best rates “at speed”, as they are based on long-term interest rate forecasts that have now shifted.

Following the Bank’s announcement on Thursday, money expert Martin Lewis used social media to urge savers to open long-term, fixed-rate accounts now, warning that savings rates could drop as soon as this afternoon.

He suggested savers should consider opening the best fixed-rate account now, but deposit no funds. This would allow a saver to lock in a rate, without committing any savings straight away and allowing them to opt for a better deal if any appear.

If lenders decide to keep rates high, savers can easily close the account, he said. A few hours before the interest rate announcement, Nationwide Building Society unveiled a 8pc offer for its regular savings account for existing customers – the best market rate on cash savings.

The average easy access account pays around 3.08pc, while the top easy access rate on the market is 5.05pc from challenger bank Paragon, according to data from Moneyfacts.

The best one-year fix on the market is 6.2pc, with the top rate for a two-year fix at 6.05pc.

Rates on Isas are also high. The rate on an easy access Isa is 4.75pc with MoneyBox, and as high as 5.60pc with Secure Trust.

The best rates on offer are typically on fixed term accounts – meaning savers can benefit from high rates if they stash their cash away for a year or more, even if lenders decide to pull deals as the economic situation improves.

Although inflation eased last month to 6.7pc after a high of 11.1pc last November, banks have only been offering improved deals since the Financial Conduct Authority (FCA) and MPs intervened during the summer.

The best savings deals
The best savings deals

In July, the regulator launched an investigation into lenders following concerns banks and building societies were not passing on fair increases to savers.

Despite intervention, these deals are still far lower than when the Bank Rate was this high over a decade ago – indicating that savers will not see rates better than what is being offered by lenders for much longer.

Alastair Douglas, chief executive of TotallyMoney, said: “Since the hikes began, banks have dragged their heels in passing the benefits on to savers, with some of the worst offenders barely shifting the dial.

“However, there are some good deals out there — but you’ll need to move fast, as they’re often ready to pull products from the market at any time.”

According to analysis, Santander’s recent market-leading easy access rate of 5.2pc – which was pulled last week at short notice and replaced with a 2.5pc deal – is far below the 6.4pc rate the bank offered when interest rates were this high in 2007.

Asda’s lending arm, now run by Santander and CitiBank, also offered savings rates far higher 16 years ago than they are now.

Even the current highest market for a top one-year bond from the NS&I, at 6.2pc, pays below 6.30pc, the average regular account rate in 2007.

Savers missing out

Not all savers are benefiting from ballooning interest rates, as around £250bn sits in accounts paying no interest, according to broker AJ Bell.

Savers who have locked in the best deals averaging around 5pc or 6pc will still see their savings eroded by inflation, which is not expected to drop to 2.9pc until some time next year, according to the Organisation for Economic Co-operation and Development.

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Ms Springall of MoneyFacts said: “Inflation is still eroding savers’ cash in real terms, so it’s imperative they take time to ensure their account is offering a competitive return on their investment.”

The Bank Rate is set to stay high for a while yet – with some economists predicting it to stay as high as 4.5pc until 2025.

But with Thursday’s rate pause, savings rates have probably hit their peak, according to financial services company Everlyn Partner’s Jason Hollands.

“Having spent much of the year trying to second guess where rates will peak at, increasingly the financial markets have recalibrated towards second guessing how long rates will remain at their peak,” he said.

“If we are not at the peak, then we are very close.”

Homeowners will also get a much needed reprieve after the Bank’s decision. Brokers are becoming more optimistic that mortgage rates will start to ease, with some claiming there is “light at the end of the tunnel”.

The cheapest fixed rate mortgage has already fallen below 4pc for the first time in months after a rate of 3.9pc was launched by the State Bank of India overnight. The deal comes with a 5pc fee but it is the only one below 4.5pc on the market.

The average two-year fixed mortgage rate is at 6.66pc, while five-year fixes are at 6.09pc, according to Moneyfacts.

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