Savers in line for £700 windfall as rates rocket

Savers could see their returns more than triple in the new year if the Bank Rate hits 5.75pc as forecast, new analysis has shown.

For the past decade, low interest rates have meant those with money in savings accounts have seen poor returns from their money.

However with the Bank of England predicted to raise the Bank Rate from 2.25pc to 5.75pc in 2023, savers could be in for a windfall of around £700, according to Moneyfacts, an analyst.

If this 3.5 percentage point rise was passed on, the average easy-access rate would rise from 0.95pc today to 4.45pc.

This would mean annual returns on a £20,000 deposit would rise from £190 a year to £890, an increase of £700, the firm said. If savings rates were to hit 5pc, savers would enjoy a £1,000 return.

A new best one-year bond, offered by the Newcastle Building Society, launched yesterday and pays 4.1pc on deposits of up to £250,000.

Rachel Springall, of Moneyfacts, said: “Savers may be pleased to see rates rise at a positive pace so it’s vital they review their existing pots and take advantage of the new top rates on offer today.

“As interest rates are forecasted to rise even further, savers will need to be sure the interest they earn on their savings is protected from tax, so that means staying within their personal savings allowance or making use of an Isa.

“Keeping on top of the latest deals is essential as some banks are repricing frequently to jostle their market position.”

Many of the country’s biggest banks have been slow to pass on interest rate rises, but returns are still better than they were in December when returns were at an average of 0.15pc.

Laura Suter, of broker AJ Bell, said many savers will need to switch accounts to see the benefit of rising interest rates.

“If savers do nothing, they will get nothing,” she said. “Banks don’t have to increase their savings rates, and many won’t, instead preferring to use the Bank Rate rise to boost their profits.”

Sarah Coles, of broker Hargreaves Lansdown, said smaller and newer banks are working harder to attract new customers by offering better rates.

“You could make around five times as much interest by moving to the most competitive account,” she said.

However, the spike in rates also means savers could be liable for income tax. Basic-rate taxpayers can earn £1,000 of interest from their savings before having to pay tax. Higher-rate payers only have a £500 allowance.