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Is now the time to fix your savings?
The best deals are disappearing as the market braces for more rate cuts
Savings rates have fallen across the board less than a month on from the Bank of England’s (BoE) rate cut on 1 August, with only a handful of deals still paying above 5%.
The beginning of the month saw the BoE drop the base rate to 5% – with more cuts expected by the end of the year – prompting banks and building societies to review their savings products.
Here, Which? takes a closer look at what's happening to the savings market and reveals which accounts still offer savers a decent return.
Fixed rates take a battering
Last week saw around 40 banks cut their savings rates, and the week before it was closer to 60, according to the investment platform Hargreaves Lansdown.
Savings interest is partly tied to changes in the BoE base rate. When it’s low, banks will generally offer savers worse deals because they will be making less interest on the money they have lent out as loans and mortgages.
Banks and building societies have been slamming the brakes on fixed-rate accounts in particular over the past 12 months. Since August 2023, the average one-year fix has dropped from 5.18% to 4.64%, and the average long-term fix has dropped from 5% to just 4.13%, according to Moneyfacts data.
Don't wait to fix
At the moment, savers can generally get a better deal on shorter one-year fixed accounts compared to fixing their savings for longer. This is a solid indication that providers are pencilling in more rate cuts shortly, and do not want customers locking in higher savings rates for long periods.
According to Mark Hicks, head of Active Savings at Hargreaves Lansdown: ‘Between now and the end of the year, it is widely expected that the Bank of England will cut rates again, leading to further falls in savings rates, so savers should act now if they can lock cash away.’
The tables below show the best one-year and long-term fixed accounts currently available on the market.
Best one-year fixed savings rates
| Provider | Account | Interest rate (AER) | Minimum investment |
|---|---|---|---|
| Union Bank of India (UK) Ltd | Fixed Rate Deposit, one-year bond | 5.25% | £1,000 |
| Mizrahi Tefahot Bank Ltd | Raisin UK* - 1 Year Fixed Term Deposit | 5.05% | £1,000 |
| Al Rayan Bank | Raisin UK* - 1 Year Fixed Term Deposit | 5%** | £1,000 |
Source: Moneyfacts. Rates are correct as of 22 August. **This is a Sharia-compliant product, and so offers an expected profit rate (EPR) as opposed to an annual equivalent rate (AER).
Best long-term fixed savings rates
| Provider | Account | Interest rate (AER) | Minimum investment |
|---|---|---|---|
| Al Rayan Bank | Raisin UK* - 5 Year Fixed Term Deposit | 4.55%** | £1,000 |
| State Bank of India | Green Fixed Deposit, five-year bond | 4.35% | £10,000 |
| Birmingham Bank | 5 Year Fixed Rate Bond | 4.33% | £5,000 |
Source: Moneyfacts. Rates are correct as of 22 August. * This is a Sharia-compliant product, and so offers an expected profit rate (EPR) as opposed to an annual equivalent rate (AER).
Don't wait before locking in to a top fixed-rate deal. In the time that you're holding out for a better deal, any cash held in a current account is probably earning little to no interest. It will also lose value as it won't be keeping up with inflation, which was 2.2% in the 12 months to July 2024.
- Find out more: best savings accounts 2024
Instant-access rates hold steady
Because rates on easy-access accounts are variable, they're more inclined to go up or down when the base rate changes. You might therefore expect providers to have also reduced interest on these products. However, Moneyfacts data suggests there are still good deals to be had, at least for now.
The best available rate for an instant-access savings account is currently 5.2% AER from Cahoot’s Sunny Day Saver account on amounts saved up to £3,000.
Your provider should get in touch to give you notice of any interest changes – and if rates do take a dip, you might need to switch elsewhere to make sure you're still getting a competitive rate.
- Find out more: what are the different types of savings account?
Watch out for tax on savings interest
Be careful if you have a large lump sum you want to invest in a savings account – you could end up with a tax bill.
The personal savings allowance means basic-rate taxpayers can earn up to £1,000 a year in savings interest tax-free, while higher-rate taxpayers get a £500 limit. Additional-rate taxpayers have no personal savings allowance.
Basic-rate taxpayers earning 5.25% AER on their savings, for example, could end up paying income tax on interest earned with £19,048. If you're a higher-rate taxpayer, the tipping point drops to just £9,524.
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