The Bank of England has raised interest rates to 4%, its first increase in more than three years. For savers holding significant cash reserves, the obvious question is whether this will translate into better returns on their deposits.The answer is not necessarily. While a rise in interest rates can create opportunities for savers, not all savings accounts respond in the same way. Some providers may pass on the increase, while others may leave rates unchanged. We look at what's behind the Bank's latest decision, how different savings products might respond and what to consider when reviewing your cash.
The Bank of England has raised interest rates from 3.75% to 4%, with eight members of its Monetary Policy Committee voting for a 0.25 percentage point increase and one favouring a larger rise.
The move comes as inflation threatens to climb again. UK inflation hit 3.5% in September, well above the Bank's 2% target, and is now forecast to approach 5% by the middle of 2027. Much of the pressure is coming from higher energy prices, fueled by the ongoing conflict in the Middle East. The Bank is also concerned that rising energy costs could push up prices elsewhere, as businesses pass on higher costs and workers seek bigger pay rises.
Governor Andrew Bailey has stressed that the increase shouldn't be taken as the start of a prolonged run of rate rises. The Bank is taking precautionary action with future decisions dependent on how inflation and energy prices develop.
A rise in the base rate doesn't guarantee an equivalent rise in savings rates. Banks aren't obliged to pass on the full increase and some may not change their rates at all. That's because savings rates depend on more than the Bank of England's decisions. Banks and building societies also consider how much cash they need to attract, what competitors are offering and where they expect interest rates to go next.
The type of savings account are relevant too. Fixed-term deposits, easy-access accounts and notice accounts can all respond differently.
Fixed-term deposit rates are forward-looking. Rather than simply tracking the base rate, they're influenced by expectations of where interest rates will be over the duration of the deposit. Because the latest increase was widely anticipated, much of the move may already have been reflected in fixed-term pricing before the announcement.
This means savers shouldn't necessarily expect fixed-term rates to rise by 0.25 percentage points following the decision.
Easy-access and notice accounts may respond more gradually.Banks have different funding needs which influence the rates they offer at any given time. Some may increase rates to attract deposits, while others may respond to competition across the market.
We could therefore see rates on these products edge higher over the coming weeks, although the timing and scale of any changes will vary between providers. Tracker products work differently. Where the interest rate is explicitly linked to the base rate, it should adjust according to the product's terms.
Higher interest rates can be welcome news for savers, but inflation remains a consideration. If the interest earned on your savings is lower than the rate of inflation, your money is losing purchasing power even if the balance is growing.
For anyone holding significant cash, whether individuals, businesses managing working capital or financial advisers looking after their clients' cash, regularly reviewing savings rates can make a difference. Cash has an important role to play, offering stability, flexibility and ready access when needed. But leaving money in an account paying a less competitive rate can mean missing opportunities to earn additional interest. The aim is to balance competitive returns with access to funds and diversification across different banks.
Whether you're managing personal savings, business cash or deposits on behalf of clients, there are three useful things to review.
Are your existing deposits earning competitive rates? Have more attractive options become available?
A higher base rate doesn't guarantee better returns, so check the interest being earned across your existing accounts rather than assuming rates will improve automatically.
How much of your cash needs to remain immediately accessible?
Understanding your short- and long-term requirements can help identify funds that could be placed into notice or fixed-term accounts. You could also consider staggering fixed-term deposits across different maturity dates. This can help preserve flexibility rather than committing all available cash at one point in the interest rate cycle.
Different banks have different funding needs, so the most competitive rates can vary across providers and products. Comparing opportunities across multiple banks can help you find competitive returns while spreading deposits across different institutions.
With Insignis, you can access a range of savings products from a panel of more than 55 banks and building societies, all through a single platform. This makes it easier to compare rates, spread deposits across multiple banks and review where your cash is held as interest rates change. Whether you're managing your own savings, business cash or deposits on behalf of clients, having access to a wider choice of products can help you make informed decisions about where to place your money.
Disclaimer: This article is for information only and does not constitute financial, investment, tax or legal advice. Rates and product availability are subject to change. Where you place your cash is your decision. If you are unsure what is right for you, consider seeking independent advice.
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