Banks have started upping the rates on their savings accounts amid expectations that inflation will go higher later this year.
Banks tend to increase the returns on their accounts when it looks like the Bank of England (BoE) will raise interest rates.
The base rate is currently 3.75 per cent, after being held at the most recent meeting of the Bank’s monetary policy committee, while inflation remains above the BoE’s 2 per cent target at 3 per cent.
Earlier this year, markets had been pricing in a series of rate cuts throughout 2026 but that outlook has changed significantly in recent weeks, with economists now expecting rates to stay higher for longer – and to possibly rise again.
That shift is already feeding through to savings accounts, particularly fixed-rate deals, as banks compete for deposits in a more uncertain environment.
Best savings rates on offer now
The biggest improvements have been seen in fixed-term savings, where competition between providers has pushed rates higher in a short space of time.
The top one-year fixed deals are now paying as much as 4.5 per cent, with providers including MBNA (4.5 per cent), Chetwood Bank (4.65 per cent) and Vida Savings (4.6 per cent) among the market leaders.
Many of these accounts require minimum deposits of £1,000 or less, although some higher-paying deals require larger sums.
Two-year fixes have also edged up, with the best rates now around 4.61 per cent from Vida Savings, closely followed by OakNorth Bank at 4.55 per cent.
Caitlyn Eastell, a personal finance analyst at Moneyfacts, said that the increases reflected a rapid shift in expectations.
She told The i Paper: “Since the start of March, early signs of higher returns have begun filtering through, with fixed benefiting most.
“The top one-year deal now offers around £25 more on a £10,000 deposit over 12 months than it did just a few weeks ago.
“While this may seem modest, it reflects the shift in focus from anticipated base rate cuts to the potential for interest rates to remain elevated.”
Why expectations have changed
Savings rates are closely linked to expectations for the BoE’s base rate. Importantly, providers tend to move ahead of actual rate decisions, adjusting their deals based on where they think rates are heading.
At the start of the year, the consensus view was that borrowing costs would fall steadily but that assumption has since been challenged.
James Blower, the founder of The Savings Guru website, said savings rates had been falling with the expectation of the base rate dropping to 3.25 per cent by the end of the year.
But with the war in the Middle East looking unlikely to be ending any time soon, markets had at one point been pricing in four base rate rises this year, so this has now been pared back.
Blower explained: “This all highlights the volatility of the market currently that we’ve gone from a base of 3.75 per cent to forecasts of 3.25 per cent, 4.75 per cent and now 4.25 per cent.
“This all makes forecasting where rates are going very hard because the Iran war has a huge bearing on matters. Having said that, we can still make value calls. Our expectation is that rates will continue to nudge up from here but not significantly, unless the situation in the Middle East gets progressively worse.”
What happens next for savers
The outlook for savings rates now depends heavily on inflation and the BoE’s response.
Many economists expect at least one BoE rate rise this year, and potentially more if price pressures persist. That expectation is already being reflected in fixed-rate savings products.
But experts have warned that higher savings rates could be in part eaten up by higher inflation.Eastell explained: “If inflation stays elevated, it will quickly erode real returns and chip away at the true value of savers’ cash.”
If inflation hits 3.5 per cent, as some forecasts suggest, then you need a rate of 3.5 per cent on your savings just to break even, and that’s before you’ve considered the tax you may have to pay.
Should you fix now or wait?
For savers, the key decision is whether to lock in current rates or hold out for further increases.Blower suggested that fixed rates already look attractive relative to where markets expect the base rate to settle, implying there may be limited room for further gains.
Anna Bowes, of The Private Office, also warned about the risks of waiting, saying: “While you might want to wait to see if something even better comes along, the danger with doing this is that you miss out on earning better interest while you wait, and you might even miss the top.
“You could therefore fix some of your cash now, to take advantage of the rates currently available, and keep some available to deposit if things do continue to improve.”
A mixed approach – fixing some savings while keeping some accessible – may help balance certainty with flexibility, they said.
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