Savings warning as Britons could miss out on ‘significant interest’

Savers may be looking if they can get a better interest rate after the Bank of England increased the base rate again. Sarah Coles, head of personal finance at Hargreaves Lansdown, spoke about what people can do to make sure they get the best return on their savings.

She said: “For variable rates, incremental changes really add up over time. If you haven’t switched easy access accounts for some time, it’s worth checking what else is out there, because you can currently make more than 3.25 percent.

“You could wait for rates to peak before doing this, but if your money is in an unrewarding high street account in the interim, you risk missing out on significant interest in the interim.”

The base rate is currently at 4.25 percent with the Bank of England consistently upping the rate over the past year in efforts to curb the rate of inflation.

Inflation is expected to fall later this year with some analysts predicting the base rate will go down as well.

With the current volatility for interest rates, some may be considering going for a fixed rate so they can be assured of a consistent return.

Ms Coles said savers may get a better rate if they hold off for a while in going for a fixed rate.

She explained: “The trouble is that you won’t know you’ve reached the peak until it has passed and is on the way back down.

“Instead, it’s worth looking at the best rates available today, and deciding whether you’re happy to fix.

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“You can currently make up to 4.5 percent by fixing for a year, which you may decide is rewarding enough to consider.”

She said she is expecting another rate rise from the central bank in early May although beyond this, things are less certain.

She said: “The Bank of England is expecting inflation to start falling rapidly from the middle of the year, and if it’s right, it will press pause on rate hikes.

“Depending on just how fast inflation falls – and what happens elsewhere in the economy, we may well get cuts further down the line.

“It means we may not see an enormous amount of upwards movement from fixed rate accounts from here.

“They will be priced based on what’s going to happen in the coming months and years, and if the banks are expecting rates to fall, they’ll get a lower fixed rate in the swaps market, so deals will start to drop.”

Changes to variable rates accounts have shifted less dramatically with the base rate hikes and analysts expect them to continue to gradually increase, Ms Coles said.

The new tax year means several changes to tax allowances and thresholds that could affect savers.

Ms Coles said: “You’ll pay income tax on any interest on savings over the personal savings allowance, and given that the thresholds are frozen for another year, there’s the risk that more people will pay tax on their savings at a higher rate.

“If you have a reasonable sum of savings and you’re a higher or additional taxpayer – or you expect these things to be the case in future, you may want to consider a cash ISA.

“At this time of year, we tend to see banks competing harder for your money, and while the best ISA rates tend to be lower than their savings account equivalents, the gap will often close significantly in late March and early April.

“If you’re considering fixing for two years, for example, you can make 4.55 percent in a savings account at 4.26 percent in a cash ISA.”

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