Savings rates have started to tumble as banks and building societies react to the Bank of England’s decision to cut its base rate from 5.25 per cent to 5 per cent.
Since the announcement on August 1, 164savings accounts have already either been cut or replaced by newer versions paying up to 0.86 percentage points less, according to the comparison site Savings Champion.
A week ago the best easy-access account paid 5.04 per cent from Oxbury Bank, but the top paying account is now 5 per cent from Principality Building Society. Meanwhile, the best one-year bond has fallen from 5.4 per cent to 5.25 per cent after Union Bank of India cut its rate. A saver with £10,000 would now earn £525 in interest over a year from the account, down from £540.
The best two-year deal has dropped from 5 per cent with RCI Bank to 4.91 per cent with Birmingham Bank. The best five-year deal is now 4.51 per cent with Birmingham Bank, down from 4.56 per cent with Hodge Bank.
The biggest cuts came from Shawbrook Bank, which dropped the rate on its two-year cash Isa by 0.86 percentage points, from 4.64 per cent to 3.78 per cent last Tuesday. On a £10,000 savings pot, you would now earn £378 interest, down from £464.
It also reduced the rate on its three-year cash Isa by 0.79 percentage points from 4.48 per cent to 3.69 per cent on Wednesday. This would cost a saver with £10,000 some £79 a year in interest.
GB Bank has cut the rate on its two-year bond, available through the savings platform Raisin UK, by 0.55 percentage points, from 5 per cent to 4.45 per cent, over the past week.
More cuts are sure to follow. Banks are already contacting customers to tell them their rates will be reduced this month. Monzo, for example, is reducing the interest it pays on its easy-access account and cash Isa by 0.25 percentage points to 3.85 per cent from August 20.
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Anna Bowes, a co-founder of Savings Champion, said: “Banks are usually quick to follow a base rate cut by reducing savings rates so I shouldn’t be surprised, but I am gobsmacked by just how many savings rate cuts there have already been.
“It really feels like the banks have been waiting all year for an opportunity to cut rates to the extent they have done, and there is likely to be more to come.”
Easy-access accounts and cash Isas typically follow the Bank rate so savers with these accounts are usually the first to be affected by a rate cut — your bank should be in touch if this is the case. But just 28 of the reductions so far have been to these accounts.
Most cuts have instead been focused on fixed-rate deals. If you are already locked in to a fixed rate, however, this will not change for the agreed term.
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Kevin Mountford, co-founder of Raisin UK, said some banks may have been caught out by the surprise cut. Many had expected the first base rate cut to come in September. Now there are predictions that the base rate could fall lower in the future than had previously been expected and this could have a further effect on savings deals as banks start to price this in.
“There are still one-year bonds paying more than 5 per cent and these are still great value to savers,” said Mountford. But with the top deals unlikely to last, those who want to secure a fixed rate are best advised to act quickly.
Mortgage rates start to drop
It has been a better week for borrowers. So far, 32 lenders have reduced fixed mortgage rates since the Bank’s decision, according to the broker L&C. A combination of fierce competition in the market and expectations that the base rate will be cut further in the future has driven more rates below 4 per cent.
The lowest five-year fixed rate is now 3.84 per cent from Barclays, beating a 3.97 per cent deal from NatWest a week ago — the lowest rates since the end of January.
The Barclays deal, which has a £899 fee and is available for homebuyers at up to 60 per cent loan-to-value, would save someone with a £200,000 25-year mortgage, £14 a month compared with the NatWest rate. HSBC also released a 3.95 per cent five-year fix last Wednesday.
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The cheapest two-year deal is now 4.22 per cent from Barclays, down from 4.42 per cent last week from the same bank. The reduction in the deal, which also has a £899 fee, would cut repayments on a £200,000 25-year loan by £23 a month.
Those on their lender’s standard variable rate (SVR) will be the first to feel the positive effects of rate cuts. Banks including Halifax, Nationwide Building Society, NatWest and Virgin Money, have announced they will cut their SVR by 0.25 percentage points.
However, the SVR, which is the rate you are automatically moved to when your deal ends, is usually the most expensive so it is rarely advisable to stick with it. The most expensive SVR is 9.73 per cent from Aldermore.
Aaron Strutt from the mortgage broker Trinity Financial said: “It is good news for borrowers that the banks and building societies are lowering their rates. Five-year fixed rates in particular are looking much better value for money.
“Lenders are still fighting it out for business. So if you are on the hunt for a mortgage it really does pay to shop around at the moment.”
Experts say that mortgage rates could fall further from here — the market has been relatively quiet this year as high rates have priced out some borrowers. However, it may be best to hedge your bets by locking in a deal early. Mortgage offers usually last for six months, so it is possible to secure a rate now and swap it for a cheaper deal in the future if rates do continue to fall.