first direct has increased interest rate on savings account to 7%

Martin Lewis reveals top easy access savings accounts

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At the beginning of this month, first direct raised the interest rate of its Regular Saver Account to assist customers looking to “get into a good savings habit”. Effective from December 1, the latest rate hike is available only to current account holders with the bank. However, this move by first direct comes as inflation in the UK skyrockets to a new 41-year high of 11.1 percent which looks set to diminish returns for savers in the short-term.

Currently, the Regular Saver Account from first direct has an interest rate of seven percent AER/gross per year, which is fixed for 12 months.

Existing customers with the bank who choose to switch over to the current account can receive £175 from the bank as part of an incentive offer.

On top of this, savers with first direct will get a £250 interest-free overdraft if they switch to the bank.

Those who choose to open up a Regular Saver Account with first direct will also get £20 for trying the product out.

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Through this savings account, customers can deposit between £25 to £300 every month, with interest being calculated daily and paid in a lump sum once the product matures.

It should be noted that savers will be unable to make withdrawals from the Regular Saver Account as it will be locked for the full 12-month period.

All existing customers will not need to do anything to acquire this interest rate increase as first direct will have automatically implemented it from December 1.

The bank has warned that it is “expecting high levels of interest” in this account following the rate rise and is emphasising applications may take longer to process than usual.

However, experts have warned that inflation will likely hurt peoples’ savings during the cost of living crisis.

To mitigate inflation being at 11.1 percent, the Bank of England’s Monetary Policy Committee (MPC) has increased the nation’s base rate to bolster interest rates.

As it stands, the base rate is at three percent and the recent rise appears to be being passed onto customers via many of the country’s banks and building societies.

Despite this, financial analysts are still sounding the alarm over the danger posed by “high inflation” on people’s savings and livelihoods.

Alice Haine, a personal finance analyst at Bestinvest, broke down how savers are being impacted by the ongoing cost of living crisis.

Ms Haine explained: “High inflation is bad news for savers who are looking for a decent return on their cash. While savers are gaining from much better rates than they have seen in more than a decade, inflation of 11.1 percent will quickly eat away at their nest eggs.

“However, with the Bank of England expecting inflation to halve by this time next year, locking in the best fixed rate now will pay off over the longer term as the gap between pay growth and inflation narrows.

“With the top easy-access account now at 2.75 percent and fixed deals of up to five percent – some savers may be tempted to hold off on locking their money away if they feel there are more rate rises to come.”

As well as this, Ms Haine shared why she believes savers should prioritise putting cash away for “a shorter period” to better look after their cash.

The financial expert added: “But there are never any guarantees, and they risk missing the peak if they wait too long.

“With inflation expected to come down and the best three and five-year fixes only paying slightly better interest rates than two-year deals, it might be wise to stash cash for a shorter period. This gives them more flexibility to switch if better rates then crop up.

“For those with a longer-term savings plan, the troubling economic environment might deter some people from increasing their pension contributions or upping their investments. But making cuts today to preserve cash for short-term needs can jeopardise financial futures.”

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