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How interest rates on savings accounts compare to the frozen base rate

The Bank of England's monetary committee decided to hold the base rate at 5.25% for a third time.

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The base rate plays a big role in meeting the government's inflation target of 2%

Christmas might just be around the corner, but that doesn’t stop the Bank of England from making another key announcement. 

Today, the Bank of England’s Monetary Policy Committee (MPC) met again to discuss whether the base rate should be changed. 

In November, MPC decided to hold the base rate at 5.25%, with six members voting to keep rates at 5.25% and three voting for an increase to 5.50%. 

This meeting mirrored last month's decision, as six members voted to maintain the base rate at 5.25% and three preferred to increase the rate by 0.25 percentage points to 5.50%.

However, it’s important to note that inflation is changing. A few months ago it was at 6.7% and now it's dropped to 4.6% - which is inching closer to the Bank of England’s target of 2%. 

The base rate plays a big role in meeting this inflation target, so the committee has been keen to keep rates high until they can be sure inflation will remain low and stable.

For now the base rate remains frozen, and this should impact interest rates on saving and borrowing. Throughout 2023, we’ve seen providers reacting to the Bank of England’s decision, with fixed-rate savings rates reaching more than 6%. 

But, since the Bank of England’s decision in November, rates on savings accounts have slowed down, and we haven’t seen fixed-rates above 6% for a few weeks. 

The monthly average for savings accounts has also dropped from 4.5% to 4.3%, which is an example of how the frozen base rate can impact rates.

Average savings rate vs base rate over time

An illustration of how savings rates have changed in relation to the Bank of England base rate over the two past years. The average rates have been calculated by taking the rates from the whole of market at the time of the base rate change. Source: Defaqto and Bank of England data.

The good news is that there are still providers offering interest rates above the base rate, with fixed-rate and notice accounts offering competitive rates. 

Plus, with inflation now at 4.6%, these interest rates have become even more attractive as it means our savings have even more purchasing power. 

Currently, the best interest rate for a one-year and a two-year fixed-rate bond is from Union Bank of India (UK) at 5.70%. Alternatively, its five-year fixed-rate bond is at 5%, for those that can lock away their money for longer. 

Notice savings accounts are also keen to beat the base rate - and inflation - with Monument Bank offering a 60-day notice account at 5.41%. There’s also plenty of choice with 90-day notice accounts as Vanquis and Beverley Building Society are both offering accounts at 5.50%.  

For those looking to benefit from tax-free saving, the top notice cash ISA is from Mansfield Building Society with its 180-day e-saver at 5.30%. Metro Bank also has a competitive fixed-rate cash-ISA at 5.41%. 

Remember, these top rates might not be around for long, as the savings market is always changing. 

We’ve already seen providers pull products in the past few months or decrease their rates from 6%, so it will be interesting to see what happens next in 2024…

Help stretch your budget a little further by making the most of your savings.

About Lucinda O'Brien

As a trained journalist, Lucinda has spent the past 10 years writing and editing content for regional and national titles, including The Mirror, WalesOnline and Manchester Evening News. She is now a personal finance editor and specialises in savings, helping people to make confident financial decisions so they can save for what matters most.

View Lucinda O'Brien's full biography here or visit the money.co.uk press centre for our latest news.