Savings rates drop to lowest levels in a year – where should you put your money now?

Time is running out for savers who want to open a high-interest fixed-term deal, as new figures show rates on these accounts have dropped to their lowest point in more than a year.

Moneyfacts data from 1 October reveals average savings interest offered on fixed-rate bonds has sunk to levels not seen since summer 2023. Rates are likely to plummet even further if the Bank of England decides to cut the base rate again on 7 November.

So what can you do to ensure your nest egg is working as hard as possible? Read on to find out where you can get the best savings interest, and how to protect your savings against falling rates.

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What's happening to savings rates?

While savings rates have been steadily falling since last autumn, they really started to tumble after the Bank of England cut the base rate from 5.25% to 5% in August 2024. A drop in the base rate is usually bad news for savers, as banks often respond by reducing the interest paid on savings accounts. 

The graph shows how average rates on one-year fixed-term accounts, longer-term bonds, and instant access accounts have changed since 1 October 2022, according to Moneyfacts data. 

• One-year fixed rate accounts have seen the biggest drops. The average rate stood at 4.31% AER on 1 October 2024, down from 4.63% AER two months previously. It's now at its lowest level since June 2023, when the average rate was 4.21%. 
• Longer-term fixed bonds (lasting more than a year) also saw average rates plunge between August and October 2024 – from 4.13% AER to 3.93%. The average rate hasn't been that low since March 2023, when it was 3.86%.
• Average rates on instant access accounts have experienced a smaller decline over recent months. After falling following August's base rate cut – from 3.14% AER to 3.07% between August and September – average rates remain unchanged between September and October.

The margin of cuts on fixed-term rates has eased month-on-month, with smaller decreases between September and October than over the previous month. However, a further base rate cut in November could see bigger interest rate cuts. 

• Find out more: the different types of savings account

Where to find a top-rate savings account

With savings rates falling fast, it's more important than ever to shop around for the best deal. 

Our table shows the top rates currently available on fixed-term and restriction-free instant access savings accounts (without withdrawal limits or notice periods, for example), ordered by length of term. A few providers are still offering rates as high as 5%, but the  number of products offering that much interest has fallen dramatically since the summer. 

On 22 July, before the base rate cut, there were 42 fixed-rate accounts with rates of 5% or more. Now, there are only two, both one-year bonds from the Union Bank of India (UK). And there's only one restriction-free instant access account, from Cahoot – unchanged since July.  

There aren't any fixes lasting more than one year offering 5% or more, meaning that you can't lock in the highest rates for the long term. This is the reverse of what used to be the case with short vs long-term savings accounts, and suggests that savings providers may be pricing in an expectation of further interest rate cuts in the future. 

One silver lining is that a whopping 97% of all savings accounts can now beat the current inflation rate of 1.7%. That's important because if the interest rate on your account is below the rate at which prices are rising, your savings will effectively lose value over time.

• Find out more: best savings accounts

How to maximise your savings when rates are falling

• Lock up your savings for longer. This might sound counterintuitive when rates on fixed-term savings accounts lasting one year or less are higher, but the best rate available now may not be around when a one-year bond matures. If you don't need to to access your funds any time soon, putting your money in an account lasting two to five years could leave you better off in the long run than if you fix for up to 12 months and have to settle for a much lower rate when it's time to reinvest the money.
• Make the most of your tax-free Isa allowance. There is a limit to how much interest you can earn on normal savings accounts before you face a tax bill (up to £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers; additional-rate taxpayers have no personal savings allowance). Isas let you deposit £20,000 a year tax-free. 
• Consider signing up to a savings platform. Platforms from providers such as Raisin and Hargreaves Lansdown help you source market-leading savings accounts. Once you're registered, you'll only have one set of login information to remember. And most platforms contact you when any bonds are due to mature, to reduce the risk of your savings languishing in a low-paying account. Just be aware that savings platforms typically don't cover the whole savings market, meaning you could miss a top rate offered by a provider the platform doesn't include. 

Find out more: savings platforms compared