Navigating the Dynamic UK Interest Rate Market: To Fix or Not to Fix Savings

Sep 27th 2023

In the ever-shifting landscape of the UK interest rate market, the choice of whether to fix or not fix savings has gained renewed significance amidst the Bank of England’s decision to keep interest rates on hold at 5.25%.

Last Thursday, the Bank of England’s Monetary Policy Committee (MPC) made a noteworthy decision by pausing its rate hikes, breaking a streak of 15 consecutive meetings marked by rate increases. The vote was close, with four members favouring a 25bps rate hike. Additionally, the MPC plans to reduce their holdings of gilts by £100 billion over the next year, indicating an accelerated pace compared to the previous 12 months. The question now looms: is this pause temporary or a more lasting change in direction?

Mixed economic indicators influenced the decision, with inflation pressures and strong domestic inflation being countered by signs of a weakening labour market and indications that monetary policy is affecting the real economy. The MPC sounded more cautious about economic activity but appeared less concerned about inflation persisting.

While this pause does not necessarily mean the end of rate hikes, it underscores the importance of carefully considering whether to lock savings into fixed-term accounts. Let’s explore the key indicators shaping this decision and their parallels with the thought process behind fixed savings and remortgaging.

Understanding the Indicators: Base Rate, 1-Year, and 2-Year Gilt Yields

The Bank of England’s base rate is the cornerstone, dictating borrowing and savings rates. Frequent adjustments based on economic conditions prompt savers to consider fixing for favourable rates. Concurrently, 1-year and 2-year gilt yields sway savings rates. As government bonds, they are considered safe investments and are closely monitored by financial institutions. Banks are motivated to offer more attractive savings rates when gilt yields rise, making fixed-term options appealing.

Over the past 12 months, 1-year and 2-year gilt yields reached their highest points at 5.474% and 5.488% in early July. Subsequently, they gradually decreased to 5.056% and 4.921% in early August, ultimately closing at 5.074% and 4.565% on Thursday, September 22nd. This shift in yields suggests that market sentiment, partly influenced by the recent decision of the Bank of England’s Monetary Policy Committee (MPC) to pause rate hikes at the last meeting, hints at the possibility that the interest rate cycle might be approaching its zenith. Allocating funds into a 1-year or 2-year fixed-term savings account may be prudent. Nevertheless, it’s crucial to remember that these indicators experienced a decline earlier this year before rebounding.

A Unified Thought Process: Mortgages and Savings

Both fixed savings and mortgage decisions hinge on anticipating interest rate trends. When selecting a mortgage, homeowners strive to secure a lower rate in anticipation of a favourable rate environment upon remortgaging at the end of the fixed term. This decision is often accompanied by a significant amount of time and energy spent on predicting future interest rate trends, given the long-term commitment and financial implications of a mortgage.

Similarly, savers lock funds into fixed accounts with the belief that future rates will be lower, safeguarding their savings against potential declines. However, the level of attention and scrutiny directed towards predicting interest rate movements is often lesser in the context of savings.

Strategically aligning fixed savings with the outlook on mortgage remortgaging yields potent insights. When individuals believe interest rates are poised to rise significantly, opting for a fixed mortgage over a two or five-year term might be prudent. Conversely, fixing savings becomes appealing if an individual anticipates that interest rates have peaked and will stabilize or decrease within two years. This underscores the interdependence driven by the pursuit of financial stability in the face of changing interest rates.

Diversification: A Shield Amidst Uncertainty

Inherent in the choice of savings is the power to diversify financial risk. Distributions across varying accounts and maturities serve as a shield against the volatility of interest rate fluctuations. This strategic diversification provides flexibility to manoeuvre in response to market dynamics.

Modern financial technology has introduced cash management platforms as a valuable tool to aid diversification. Seamlessly facilitating diversification, these platforms empower individuals to allocate funds across various accounts and maturities, from easy access to short-term high-yield savings to longer-term fixed-rate options. By judiciously distributing funds among multiple banks, individuals can amplify their risk mitigation strategy, harnessing the protective shield offered by the Financial Services Compensation Scheme (FSCS). This dynamic approach emboldens savers to traverse the intricate interest rate market confidently and provides the dual advantage of elevated returns and reduced risk.


The chosen path – to fix or not to fix – ought to emerge from meticulous research, diligent scrutiny, and a deep understanding of individual financial aspirations and liquidity requirements. The compass guiding these decisions remains firmly rooted in market awareness and a diversified approach, steering economic outcomes toward their utmost potential.

With the base rate at its highest since February 2008, fixing surplus funds not needed for a year could prove advantageous. Contrasting the 2022 1-year fixed term at 3.87% with the present robust 6.12%* emphasises seizing opportunity. For an investment of £50,000, missing this chance could mean forfeiting around £3,060 in returns.

In this dynamic financial landscape, the strategic alignment of fixed savings and leveraging technology enables savers to confidently navigate the interest rate market. This approach ensures financial strategy resilience and allows savers to enjoy the benefits of fixed savings while maintaining liquidity.

*Rates respectively available on the Insignis Cash Platform as of 27/09/22 and 27/09/23 subject to a minimum and maximum deposit size. Availability of product will vary depending on the client type.

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