Savers urged to open inflation-beating accounts before UK interest rates fall

UK savers are being urged to lock into an inflation-beating savings account before interest rates start their downward journey.

A number of fixed-rate savings bonds currently pay 5%-plus – on these accounts your return is guaranteed and you will be earning more than twice the current rate of inflation.

However, with most analysts expecting the first Bank of England base rate cut in August or September, followed by several more over the next year or two, the rates available right now may not hang around for long, some commenters claim.

Mark Hicks, a savings expert at investment firm Hargreaves Lansdown, says: “This is a window of opportunity for savers, so now is the time to clamber in and grab a decent rate before it closes.”

Lucinda O’Brien, of the comparison website money.co.uk, has a similar message: “Now is the time to act, before it’s too late.”

Earlier this month it was announced that inflation measured by the consumer prices index (CPI) fell to 2% in May. It’s a far cry from the period in 2022 and 2023 when inflation was running at 10% to 11%, eating into the value of millions of people’s nest-eggs.

Many of the highest-paying savings accounts offering a rate of 5%-plus are fixed-rate deals where you have to tie your money up for 12 months.

At the time of writing, a number of players were offering one-year fixed-rate savings bonds paying 5.2% or more. These include the My Community Bank credit union and Union Bank of India (UK), both paying 5.22%; Vanquis Bank, offering 5.21%; and Close Brothers Savings, paying 5.2%.

These require a minimum deposit of £1,000, except Close Brothers Savings, which requires £10,000 to open an account.

However, Sarah Coles, the head of personal finance at Hargreaves Lansdown, says that while you can earn the most interest with a one-year fixed-rate account, “you would need to track down another fix when it matured [and] there’s a decent chance the rates on offer by then will be significantly lower”.

This is why two-year fixed savings bonds are looking attractive, she says. “You could consider tying up any cash you don’t need for two years, and making the most of the great rates while they’re around.”

On Thursday, the highest-paying two-year fixed-rate savings bonds were those offered by Vanquis Bank and Close Brothers Savings, paying 5.06% on minimum balances of £1,000 and £10,000 respectively.

Other providers offering two-year fixed savings accounts boasting best-buy rates included Hodge Bank (4.97%), Market Harborough building society (4.95%), and Atom Bank (4.9%). The minimum deposits for these are £1,000, £10,000 and £50 respectively.

“This is a really sensible time to consider locking in a fixed rate,” says Coles. She believes the Bank of England is not going to be in a hurry to cut rates, but they are likely to get progressively lower. “By the middle of next year [rates] are forecast to be 4.5%, and by the middle of 2026 they are expected to hit 4%.”

It is a good idea to review your savings rates anyway, if you have not done so during the past six to 12 months, says Rachel Springall, of the financial data provider Moneyfacts.

Loyalty “does not always pay”, and the average easy-access account interest rate paid across the biggest high street banks is 2.01%, which is 0.05% less than it was six months ago, based on a snapshot of rates on 19 June.