Best savings rates fall below 4.5% ahead of expected cut: what to do with your cash now

The best easy-access savings rate on the market has fallen below 4.5% for the first time in two years, and fixed-rate bonds are being cut almost daily, as banks and building societies move ahead of an interest rate cut that markets now expect at the Bank of England’s meeting on 6 November.

The top easy-access account, from the app-based Harbour Bank, pays 4.45%, down from 4.72% at the start of September. The best one-year fixed bond, from Marlow Building Society, pays 4.3%, and the best two-year fix 4.1%. The comparison site Moneyfacts counted 14 cuts to easy-access rates in the first 10 days of October, against three increases.

That still leaves savers in a better position than they have been for most of the past 15 years, but the direction is clear. “Every provider is pricing in a cut in November and at least one more by the spring,” said Rhiannon Pugh, a savings analyst at Moneyfacts. “If you are on a rate that starts with a four, enjoy it, because it will not last the winter. The accounts that are still paying well are the ones nobody has looked at since the summer.”

The first thing to do is check what you are actually earning. Lloyds, Barclays, HSBC and NatWest all pay less than 1.5% on their standard instant-access accounts, and the Financial Conduct Authority estimates that about £250bn is sitting in accounts paying 2% or less. A saver with £20,000 in such an account is giving up about £500 a year compared with the best buy.

For money you may need at short notice, an easy-access account is the right home, but it is worth checking the small print. Several of the top-paying accounts include a bonus that expires after 12 months, after which the rate drops to a fraction of a per cent, and a growing number limit withdrawals to three or four a year. Harbour Bank’s 4.45% account allows unlimited withdrawals but is app-only.

For money you will not need for a year or more, a fixed-rate bond locks in today’s rate regardless of what the Bank does. The gap between easy-access and one-year fixed rates is now very narrow, which usually means the market expects easy-access rates to fall. “If you can tie the money up, a fix is the only way to guarantee the number,” Ms Pugh said. “The time to do that is before the decision, not after it.”

Savers with larger balances should keep an eye on tax. The personal savings allowance lets basic-rate taxpayers earn £1,000 in interest tax-free, and higher-rate taxpayers £500, and at 4.4% a basic-rate taxpayer hits the limit with about £22,700 in savings. A cash Isa, where interest is tax-free, is the obvious alternative, and the best easy-access Isa currently pays 4.2%. The annual Isa allowance remains £20,000, though the government has said it is reviewing the cash element.

Finally, do not assume loyalty is rewarded. The Financial Conduct Authority found last year that providers were on average paying 1.2 percentage points less on accounts that were more than two years old than on new ones. Moving a savings account takes about 10 minutes online and, unlike moving a current account, involves no direct debits, no standing orders and nothing to go wrong.