Savers willing to lock their money away for a guaranteed return are being encouraged by experts to make the most of rising rates on accounts.
Fixed savings rates – where you get guaranteed interest for a set period of time – are continuing to climb across the market. Average one-year fixed rates have risen for six consecutive months, while longer-term fixed rates have risen for a seventh.
This continued upward movement is “positive news” for savers, with the majority of accounts offering more than inflation – currently 2.9 per cent – according to Moneyfacts.
But why are they going up? And what can you do to take advantage? We take a look below.
How much are rates going up by?
Easy-access rates – where the figure can change at any time, but your cash can be accessed immediately – are lower than last year, but fixed rates are going up quickly.
Some fixed-rate accounts are offering near 5 per cent.
On average, one-year fixed ISAs – savings accounts where you don’t pay tax on the interest earned -are at an average rate of 4.26 per cent, the highest level since September 2024 when they averaged 4.29 per cent.
Analysis, carried out by Moneyfacts, found longer-term fixed ISA rates – two-years, three-years and five-years – rose to 4.3 per cent, its highest since January 2024 when they averaged at 4.32 per cent.
Family Building Society pays the top one-year ISA rate at 4.88 per cent according to tables from consumer website MoneySavingExpert.com, though with a £10,000 minimum deposit
If you have less to save, Shawbrook Bank pays next best at 4.87 per cent for one-year, plus offers top rates at 4.96 per cent for two-year fixed deals and 5.01 per cent for five-year deals. All its fixes can be opened with £1,000 or more.
Caitlyn Eastell, personal finance analyst at Moneyfacts, said: “Savers have been handed another welcome boost this month, with fixed savings rates continuing to climb and competition remaining incredibly strong across the market.”
Below are some of the best rates on the market.
Why are savings rates rising?
There are three key factors that determine why savings rise – the Bank of England’s interest rate, inflation, and how much private banks and building societies need your money.
The Bank of England base rate is currently at 3.75 per cent, but it tends to go up or down depending on where inflation is projected to go in the future.
Experts say that the war in Iran is set to cause an increase in inflation because it is pushing oil prices up. This is causing traders to predict that the Bank of England will hike interest rates, which is having a bearing on savings rates.
Speaking to The i Paper, James Blower, founder of The Savings Guru, said: “The war in Iran is continuing to fuel the savings market with financial markets currently pricing in three base rate rises in the next 12 months.”
Some banks also use savings deposits to fund their mortgage lending, so have a need to attract customers. The best way to do this can be offering enticing savings rates.
Blower explained: “In reality, what we are seeing is those providers who are reliant on savings balances to fund their lending businesses are having to pay up to get balances.”
What should you do?
Andrew Hagger of MoneyComms encouraged savers with “any spare cash you can lock away for a year or more” to do so sooner rather than later as rates can change very quickly.
Blower, agreed, saying that now is a good time to shop around and lock into a more rewarding rate.
Another alternative to cash savings is to invest your money.
When you invest your money, you’re putting it to work buying things like company shares, bonds, or funds hoping they increase in value or pay income.
Unlike cash, investments can go down in value as well as up so you might get back less than you put in.
Generally, experts say you should consider moving money from a cash account into investments if you have already built a solid short-term emergency fund and have a long-term goal of at least five years, though everyone’s individual circumstances are different.
How tax works on your savings
The way normal cash accounts and ISAs differ is in tax treatment. With normal cash savings accounts, you pay tax on the interest you earn if it goes over the personal savings allowance.
This allowance, and the tax rate you’ll pay, differs depending on what you earn.
All interest inside an ISA is tax free but there is a strict amount on how much you can put into ISAs each year. Currently, that limit is £20,000 across both cash ISAs and stocks and shares ISAs.
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