Savings rates have been climbing, with some of the best fixed deals now offering returns of more than 5 per cent – far outpacing inflation.
This week, the Government-backed NS&I raised the rate on its popular British savings bonds to 5.17 per cent, adding to the competition for savers’ cash.
But with the countdown to the Budget on 28 October under way, savers may be wondering whether to grab one of today’s top rates or wait to see what Chancellor John Healey announces.
While the Budget itself will not set savings rates, measures affecting the economy, government borrowing or the outlook for interest rates could influence what banks are prepared to offer.
That leaves savers with a tricky decision over whether to lock their money away now or wait in the hope that better rates emerge.
Here, we look at the best savings rates currently available and ask experts whether now is the time to fix ahead of the Budget.
What could the Budget mean for savings rates?
The key question for savers is what happens to the wider interest-rate outlook after the Budget.
If the Chancellor announces a big increase in spending or tax cuts that push up government borrowing, markets could expect inflation to stay higher for longer, changing their expectations for future interest rates.
That could feed through into the rates banks offer on fixed savings accounts.
The reverse could also happen – if the Budget is seen as putting the public finances on a more sustainable footing or doing less to boost demand, markets could revise down their expectations for inflation and interest rates.
The base rate was held at 3.75 per cent in September for the sixth consecutive time. Currently, most economists believe this will increase later this year.
This matters for savers because fixed-rate accounts are priced according to where banks and financial markets expect interest rates to be over the period of the deal.
Banks can therefore change their fixed savings rates in response to shifts in those expectations.
So, while the Budget will not directly determine what savers are paid, it could change the direction of travel for savings rates – potentially making today’s deals look more or less attractive.
The best savings rates right now
Currently, the top accounts are paying a little over 5 per cent. Union Bank of India is top for one-year fixed accounts at 5.12 per cent.
Meanwhile, GB Bank is top for two, three and five years at 5.18 per cent, 5.2 per cent and 5.37 per cent, respectively.
Five-year fixes offer the highest rates, with DF Capital paying 5.35 per cent and Oxbury Bank paying 5.34 per cent. These are followed closely by NS&I’s bond.
The best easy access savings rate – where you can dip into and withdraw money at any point – is with Trading212, offering a rate of 4.75 per cent – but it is for new customers only.
Tembo, meanwhile, is offering a rate of 4.55 per cent.
All of which are above the current rate of inflation at 3.1 per cent.
Should you lock in your savings now?
Savers may be wondering whether to lock into a one or two-year fixed account – where you cannot access the funds in that time frame – or prioritise accessing money in case rates improve.
James Blower, founder of The Savings Guru, said the current market was unusually difficult to predict, but that fixed-rate savings were looking attractive.
He said: “With the base rate expected to rise to 4 per cent next month, and then see two or three further increases next year, rates as high as 5.12 per cent and 5.37 per cent are currently significantly ahead of those levels even if they do materialise.
“On this basis, fixed rate pricing on savings looks very attractive and out of kilter with market expectations.”
But he warned the outlook remained uncertain, particularly because of the economic impact of the Iran war.
Blower added: “Should this continue for much longer, or significantly worsen, then rates could rise even higher than current levels. But a lot of this is priced in so I do not expect significant upwards moves from here.”
Andrew Hagger, founder of MoneyComms, also believes savers should consider taking advantage of the rates currently on offer.
He said rates on fixed savings accounts and fixed cash ISAs have been “soaring” in the last few weeks.
“There’s no guarantee that they will continue this upward trajectory, so if you’ve got some money you can afford to lock away for a year or two, now would be a good time to make that move.”
That does not necessarily mean every saver should rush to fix their money. Anyone who might need access to their cash should think carefully before locking it away, they advised, while those who are prepared to take the risk of rates rising further may prefer to wait.
But for savers with money they definitely will not need in the near term, current fixed rates could provide an opportunity to secure a return above 5 per cent before the Budget and any subsequent changes in the economic outlook.
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