Savers are set to see big reductions on the amounts they earn in interest from their cash after Thursday’s Bank of England base rate cut, experts have warned.
The Bank of England has slashed the rate from 4.75 per cent to 4.5 per cent.
Returns on savings tend to fall as the base rate does. The last time the base rate was cut – November 2024 – average savings rates on accounts nosedived.
Between the start of November and December, average rates dropped from 4.22 per cent to 4.1 per cent on fixed accounts, and from 3.03 per cent to 2.96 per cent on easy-access accounts, according to Moneyfacts.
The same thing happened after a previous cut in August: average fixed account rates fell from 4.29 per cent to 4.23 per cent over the month, while easy-access rates dropped from 3.15 per cent to 3.08 per cent.
No bigger percentage point drop was seen in a single month across 2024 on either type of account.
Experts warn that further falls could happen in February, and that savers should consider locking cash away now to protect their money.
Andrew Hagger of Moneycomms warned: “It’s inevitable that we’ll see easy-access rates marked lower.
“If you’ve got some spare money you are able to lock away, now would be a sensible time to lock into a one or two-year deal, as this base rate cut is unlikely to be the last in 2025.”
Rachel Springall of Moneyfacts said: “Savers who rely on their cash savings to boost their income are at the mercy of lower interest rates.
“It has already been proven that cuts to the Bank of England base rate set the wheels in motion for the biggest banks in the country to cut rates, showing loyalty does not pay.”
Anna Bowes of the Private Office added: “Undoubtedly there will be rate cuts now that the base rate has fallen again. We have already seen the top rates on fixed term accounts falling a little, reflecting the market expectation of today’s decision – and some variable rate accounts have also already been cut by some providers in anticipation.
“This includes the Bank of Scotland & Lloyds Bank and Barclays has announced that they will be cutting some variable rates 13 February – these were announced before the base rate decision today.”
Easy-access accounts allow savers to withdraw money at any time, but the rates can also be changed with little notice.
By contrast, if you lock cash away in a fixed account, the interest rate is set for a period of time – usually one or two years.
For example, the best two-year rate on the market, from Close Brothers, pays 4.7 per cent. The bank would have to pay you this return on your cash until 2027 if you locked the deal in now, even though the base rate will fall by then.
The best one-year deal from Vida Savings pays 4.77 per cent.
These offers are significantly higher than inflation, which is 2.5 per cent. After one-year, if you locked £10,000 away at 4.77 per cent, you would make £477 in interest.
If inflation stayed at 2.5 per cent, you would only need to make £250 for it to retain its value, so an account paying this amount means you gain money in real terms.
But economists expect more Bank of England rate cuts in 2025, which could mean banks lower their rates.
Some economists predict there could be as many as four or five cuts in 2025, so others forecasts as few as one more after Thursday’s.
