Finance: Expert on impact of inflation on savings accounts
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Interest rates are expected to increase, as the Bank of England’s rate-setting Monetary Policy Committee meets to discuss the matter. Financial markets are anticipating a move by the central bank after a series of decisions to keep the base rate at 0.1 percent. If interest rates were to rise, it could be good news for savers who have been forced to endure over 18 months of dire returns on their cash.
However, analysts have taken the time to warn Britons that an increase in interest rates by the central bank may not necessarily translate to savers.
Ed Monk, Associate Director at Fidelity International, commented on the impact of an interest rate increase for savers.
He warned of a “close call” when it comes to whether the central bank’s interest rate will rise tomorrow.
Mr Monk said: “As with mortgages, the interest rates on savings accounts are controlled by account providers.
“They do not have to rise just because the Bank rate does.
“However, a higher Bank rate should make it easier for providers to up interest rates to compete for savers’ cash.
“Someone with £20,000 held in the current highest-paying easy-access savings account can get a 0.65 percent return on their cash right now.
“This means they could expect £330.25 of interest on their money over the next five years.
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“Were that interest rate to rise by 0.25 percent to 0.9 percent, their return would rise to £460.10.”
However, there remains optimism about what could potentially happen tomorrow if interest rates do increase.
As a result, Britons are being advised not to fix their savings rate, as doing so could mean individuals miss out on any increases that do occur.
Laura Suter, head of personal finance at AJ Bell, said: “While a rate rise is positive news for savers, who’ve suffered more than 12 years of the Base Rate being less than one percent, fixing now means you’ll miss out on any increases.
“The top two-year fixed rate account is currently paying 1.76 percent, which is significantly more than the top easy-access account of 0.65 percent.
“But both those rates should rise after Base Rate increases – and if you’ve already locked in for two years you’ll miss out.”
However, Ms Suter also cautioned Britons on being overly optimistic about immediate changes reflected in their pocket.
She added: “If your money is sitting in your current account, you likely won’t see an increase in the interest rate you’re being paid.
“Instead banks will pocket the difference to boost their profits.”
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As a result, Britons may need to do a little more work in order to secure a higher rate, looking around and keeping an eye out for the best offers.
While an interest rate rise could be a “shot in the arm” for savers, general ambivalence to rates could mean individuals actually end up missing out.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, suggested that because interest rates have been poor for such a long time, Britons have long since given up on keeping an eye on them.
She warned: “We need to track down what we’re making on our savings, and if we’re earning next to nothing we should keep our eyes peeled for better deals from smaller and more competitive banks in the immediate aftermath of a rate rise.
“If rates don’t go up in November, it doesn’t mean we should sit on our hands either.
“If your money is in an easy access account with a high street bank making 0.01 percent, you don’t need the Bank of England to act in order to make 66 times the interest by moving to the most competitive alternative.”
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