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A month on from the base rate rise: have savings rates improved?

The Bank of England base rate rose from 0.1% to 0.25% in December 2021

It's been a month since the Bank of England increased the base rate to 0.25%, but savers are still not benefitting from the 0.15 percentage point rise, Which? analysis shows.

The base rate, which affects the rates banks offer for mortgages and savings, had previously been at a historic low of 0.1% since the beginning of the Covid-19 pandemic in March 2020.

Here, Which? investigates if the 0.15 percentage point rise has been passed onto savers in the form of higher interest rates and reveals the best savings and cash Isa rates available right now.

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How do rates compare to a month ago?

When it comes to average interest rates being offered by savings accounts and cash Isas, there's been less movement over the past month than we've seen before the base rate increase.

The graph below shows how average interest rates have fared since February 2021, using data from Moneyfacts.

As the graph shows, average rates for instant-access cash Isas, one-year fixed-term savings accounts and one-year fixed-term cash Isas remained the same between December 2021 and January 2022.

Previously, rates for one-year fixed-term accounts had increased every month since June 2021.

Average rates for long-term cash Isas and savings accounts (with a fixed-term of 18 months or more) have increased by 0.02% and 0.01% respectively.

Again, before December's base rate increase, average rates for longer-term fixes had been increasing much faster; long-term savings account rates jumped 0.08% between November and December 2021, while average long-term cash Isa rates increased by 0.04% during the same two months.

There has been little change for average instant-access rates, due to the fact that there are still so many accounts offering rock bottom rates of 0.01% and 0% to savers. There was just a 0.01% increase between December 2021 and January 2022, but the average rate of 0.2% is the highest level these accounts have been at since February 2021.

Some top rates are getting worse

As for top rates, it seems some have actually dropped since last month's base rate decision. Looking at rates from 9 December, the week before the base rate change, we saw a restriction-free top instant-access savings account rate of 0.71% AER.

The top rate for this kind of account is now 0.67% AER; a slightly higher rate of 0.7% is available, but comes with restrictions.

The top one-year fixed-term savings account paid 1.4% AER on 9 December, this has risen very slightly to 1.41% EPR.

Looking at five-year fixed-term accounts, the top rate before the base rate change was 2.1% AER. This is now 2.08% AER.

What are the best savings and cash Isa rates?

The table below sets out the top fixed-term and instant-access savings accounts and cash Isas, by order of term.

Account typeAccountAERTerms
Five-year fixed-term savings accountHodge Bank Five-Year Fixed-Rate Bond2.08%£1,000 minimum initial deposit
Five-year fixed-term cash IsaUnited Trust Bank Five-Year Fixed-Term Cash Isa1.75%£15,000 minimum initial deposit
Four-year fixed-term savings accountGatehouse Bank Four-Year Fixed-Term Woodland Saver1.92% (EPR*)£1,000 minimum initial deposit
Four-year fixed-term cash IsaUnited Trust Bank Four-Year Fixed-Term Cash Isa1.42%£15,000 minimum initial deposit
Three-year fixed-term savings accountZenith Bank Three-Year Fixed-Term Deposit1.85%£1,000 minimum initial deposit
Three-year fixed-term cash IsaUnited Trust Bank Three-Year Fixed-Term Cash Isa1.4%£15,000 minimum initial deposit
Two-year fixed-term savings accountAtom Bank Two-Year Fixed Saver1.6%£50 minimum initial deposit

Source: Moneyfacts. Correct as of 12 January 2022, but rates are subject to change. *The accounts from Gatehouse Bank are Sharia-compliant, and so offer an expected profit rate (EPR) as opposed to interest (AER).

Those with smaller deposits may find it difficult to secure a top-rate account at the moment; only two in our table accept a minimum initial deposit of less than £1,000, while two others require a hefty £15,000 to be locked away.

In many cases, there are accounts that pay slightly less, but will accept lower deposits.

While savers can get a significantly higher rate with a fixed-rate account, make sure you can commit to saving for the full term. Some accounts won't let you access your money before the term is up, while others will take away much of the interest your cash has earned, meaning there's little point locking it away at all.

How does the base rate affect savings?

The base rate determines the rate of interest the Bank of England charges when it lends money to commercial banks.

The higher the base rate, the more banks have to pay to borrow from the Bank of England - which means they'll usually look to other means to fund their borrowing.

This most commonly includes increasing the interest rates for borrowers repaying mortgages, and upping interest rates on savings accounts to encourage more people to deposit their money - paying interest on savings is usually cheaper for a bank than paying loan interest.