Savings rates have jumped yet again with best buy three-year bonds now paying 4.85 percent but savers face a tough choice. Should they lock in now or wait to get an even better return on their money?
The Bank of England may increase base rates by as much as 1.25 percent on November 3, and recent experience suggests this will quickly feed through to higher savings rates.
Savers now face a tough choice of whether to take out a top rate today or hold off in the expectation of getting even more tomorrow.
The downside of waiting is that it could mean getting a lower return from your existing account in the interim.
The Bank of England has already hiked base rates for six meetings in a row, from 0.1 percent in December to 2.25 percent in September.
Base rates could hit 3.50 percent next month and fly as high as six percent in the spring as BoE governor Andrew Bailey battles to curb inflation and save the pound, market analysts reckon.
If that happens, savings rates could be heading towards six percent within a matter of weeks, and possibly eight percent or more in the spring.
This is a golden age for savers as rates hit levels we haven’t seen for more than 14 years, said Anna Bowes, founder of rate tracking service Savings Champion.
It isn’t all good news, though. “Even the best savings accounts still pay well below today’s inflation rate of 9.9 percent, so the value of your money is still shrinking in real terms.”
Banks and building societies are falling over each other to offer higher returns, with online bank Cahoot launching a fixed-rate bond paying 4.30 percent, up from 3.70 percent before.
That isn’t the best deal on the market, though. Charter Savings Bank’s one-year bond leads the field by a nose, paying 4.31 percent.
Cahoot also lifted the rate on its three-year fixed rate bond by sixty basis points, from 4.20 percent to 4.80 percent.
Its spell at the top of the best buy tables lasted just one day, as this morning Coventry Building Society unleashes a three-year bond today paying a table-topping 4.85 percent.
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Today’s three-year fixes actually pay more than five-year fixed-rate bonds, where Close Brothers Savings tops the charts with 4.60 percent.
Banks and building societies assume central banks will slow or even reverse interest rate hikes next year, as the world tips into recession. So today’s bonanza will not last forever.
Many savers will be wary of locking in just now, given the speed and trajectory of today’s rate rises.
Yet they will also be reluctant to leave their money in languishing in a low interest account while they wait. Barclays Everyday Saver, for example, pays just 0.15 percent.
Somebody with £10,000 in that account would get interest of just £15 a year, but could get £485 from Coventry’s three-year fix.
Yet if they wait just a few weeks they could potentially get more than £600, assuming the BoE does hike on November 3.
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As the pound stumbles from crisis to crisis, Bailey will be forced to take aggressive action and base rates are likely to rise in December, too.
One option for savers is to park money in a notice account to get a better return today with the freedom to grab a better rate in, say, 30, 60 or 90 days.
RCI Bank pays 2.10 percent with just 14 days’ notice to get at your money, while OakNorth Bank pays 2.71 percent with 90 days’ notice, Moneyfacts figures show.
If you do spot an attractive savings account, you may need to act fast as many are pulled within days after being deluged by applicants.
Santander’s newly launched eSaver Limited Edition pays a market-leading easy access rate of 2.75 percent.
However, Moneyfacts content writer Michael Brown warned this is set to be withdrawn on November 1. “If it receives enough demand beforehand, the offer may be retracted even earlier.”
Savings rate best buy tables have made dull and depressing reading for years, but today savers can’t afford to take their eyes off them.