There has been a lot of noise around the fact that banks have not passed any significant increases onto savers after the BoE interest rate increases. Considering mortgage holders with variable mortgage deals will have felt the increase almost straight away why have savers not been treated the same and how does this impact your savings?
As we all know, inflation has a considerable effect on the power of our money in the future. Unfortunately, we as savers can do little to influence the rate of inflation as well as the bank interest rate the BoE sets for us. Because of this we need to focus on what we can do and what we can influence when it comes to our cash.
Simply put, customers need to shop around for a better rate and help themselves more, especially in times of low interest rates. We often get asked what is the point, the rates are so low it’s hardly worth the effort, but if you take £300,000 at a current high-street interest rate of 0.10% you will earn £300. By shopping around and using multiple banks for the same amount, we can get you £5,304, a considerable difference. The more you shop around and keep on top of the changing landscape, the better off you will be. In a low rate environment active management of your cash is a must.
We also see a number of clients that focus on instant access, where interest rates are traditionally lower than other liquidity time frames. Our research shows that, since March 2018, our Easy Access accounts showed no significant change, but there has been a significant increase on our one-year rates to north of 2%. Customers should consider the options of notice and term accounts and how dividing their cash into smaller portions across a variety of terms could offer a higher return. That way, you can gain access to at least some of the cash in the short term whilst simultaneously benefitting from higher longer-term rates.
Setting bank interest rates for savings is unfortunately not as black and white as savers feel it should be. Competition between the banks will have a far greater impact on their decision to increase a rate versus a base rate increase. The new Goldman Sach’s Marcus account has already started an interest rate upward trend which is good news for the savings market in general.
It also boils down to bank liquidity. Does the bank need more funds and therefore do they need to attract more clients? If this is the case, the chances of a rate increase will be higher.
At the end of the day, savers should focus on what they can do about their savings rate with the market that we are in. Forget about the BoE base rate and inflation and focus on managing savings to ensure the best return according to requirements. As ever, we can help get better interest rates with simple active savings account management.