Savers encouraged to lock in fixed rates now as interest rates fall | Personal Finance | Finance
Savers are encouraged to take advantage of fixed rate savings accounts before interest rates fall.
Many experts are anticipating the Bank of England will hold the base interest rate at 5.25 percent again with many savings providers already dropping their rates.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “If you don’t need the cash for a year or more, you may be tempted to hold it in a variable rate account for a higher return in the short term.
“However, in the coming months, there’s a very high chance that rates will fall, so if you don’t need the cash right now, fixing and guaranteeing the return for a year or more may well prove more rewarding.
“These fixed rates have fallen, but there are still plenty of deals over one and two years offering more than five percent right now, so there are great rates worth snapping up while you can.”
At the time of writing, several providers still have one-year fixed rate accounts on offer with rates above five percent and there are also some two-year fixes available at above five percent.
Ms Coles said: “Savings rates have continued to drop, because while December’s bump in inflation may have persuaded the market there might be slightly fewer rate rises during 2024, it hasn’t shifted the conviction we’re set for a rate cut in the coming months, and several more during the year.
“It’s so sure of this that the best one-year fixed rate savings deal has now dropped below the best variable one, as banks price in the rate cuts they’re expecting.
“Whether things play out exactly as they expect is another matter entirely, but when it comes to pricing savings accounts, it’s what the banks assume that matters right now.”
The CPI measure for inflation rose month-on-month in December after duty increases caused a rise in the price of tobacco and alcohol.
Core inflation, which is a key metric used by the Bank of England to determine whether to hike interest rates, rose by 5.1 percent in the 12 months to December 2023, unchanged from November.
Julian Jessop, economics fellow at the Free Market Institute of Economic Affairs, said the data could “dampen the hopes” of early Bank of England rate cuts.
He wrote on X: “UK #inflation unexpectedly ticked up to four percent in December, with the ‘core’ rate stuck at 5.1 percent, which will dampen hopes of early rate cuts.”
Carsten Jung, senior economist at IPPR, pointed out that even though inflation inched up slightly, the rate is still falling “more quickly” than many predicted just a month ago. He said: “This is largely due to global supply chains recovering and energy costs falling.
“We have long been arguing that there was too little focus on this and too much attention on wage earners. As a result, the Bank of England tightened the screws too much.
“Similar to the US central bank, we will likely see a slow reversal of its policy stance towards cutting rates sooner this year.”
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