Savers are being urged to lock in a good account as soon as they can, as experts predict that lower-than-expected inflation figures will trigger rate cuts within the next few days.
Inflation in the year to November was 3.2 per cent according to figures released on Wednesday, meaning economists think an interest rate cut by the Bank of England (BoE) on Thursday is almost certain.
The BoE rate sits at 4 per cent and is expected to fall to 3.75 per cent.
Lower interest rates tend to mean banks lower their savings rates, meaning consumers get a lower return on their money.
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And so those with cash to put aside are being told that now may be the best time to lock in a rate, before reductions come in.
Easy-access savings rates can change at any time, but fixed savings rates are guaranteed for a set period of time.
But the trade-off is that fixed rates require savers to lock their money away, so only money that is not needed imminently should be put in them.
The best fixed rate savings account, from Kent Reliance, pays a rate of 4.51 per cent for 12 months, so consumers who put money in this account will be beating inflation.
Sally Conway, savings expert at Shawbrook Bank, said: “ Lower inflation is good news for household budgets, but it’s a different story for savers. This kind of movement strengthens the case for an interest rate cut, which would likely mean savings rates have peaked.
“Some savings will inevitably take a hit over Christmas.”
Riz Malik, director at financial advisory R3 Wealth, said rates could drop “within two to three days”.
“Given that a Christmas rate cut is highly likely, especially following the inflation print, financial institutions won’t be hanging around and are likely to reprice pretty sharpish,” he said.
James Blower, founder of The Savings Guru, said: “Banks are already paying higher rates than make sense for even a 4 per cent base rate. Current rates are significantly overpriced for a 3.75 per cent base rate, so I think we will see cuts quickly. Some immediately before Christmas but others at the start of January as some providers will be slow to move over Christmas.”
What are the best rates currently?
The best rates depend on whether savers want to lock their cash away or need access to it.
It also depends on whether you have used up your ISA allowance. ISAs allow savers and investors to shield £20,000 a year, and the interest earned or gains made are not subject to tax.
Money outside of ISAs may end up landing savers with a tax bill, depending on how much they earn.
Currently, the best accounts on the market are:
Easy-access savings – Chase (4.5 per cent including a one-year bonus) Easy-access ISA – Trading 212 (4.52 per cent including one-year bonus) One-year fixed – Kent Reliance (4.51 per cent) Two-year fixed – Kent Reliance (4.42 per cent) Three-year fixed – Kent Reliance (4.26 per cent)What you can do
Those who do not need the money instantly could consider locking cash away in a fixed-rate account, as these are unlikely to go any higher in the near future.
Conway said: “Once the dust settles, it’s worth checking whether remaining cash is working hard enough. Savers who value certainty may want to lock in current fixed rates while they’re still available, particularly for money they don’t need immediate access to.”
Blower added: “Savers looking to lock in to the best fixed rates should move quickly as the best deals are likely to be withdrawn or cut from Thursday afternoon.”
Other financial experts have pointed out that investing can be a long-term way of getting stronger returns than with saving.
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With saving, gaining money is guaranteed, though with investing, your cash can go down as well as up.
Over the long term, lots of people make more money from investing rather than saving, but anyone who chooses to invest has to be comfortable with the risk.
Kevin Brown, savings expert at insurance firm Scottish Friendly, said: “The best rates won’t be around for long – so now could be the time to act. And for those looking to improve their chances of outpacing inflation, investing remains the more effective option to provide the potential for greater returns over the long term.”
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