It’s the news we were all expecting - the base rate has continued its climb and it now stands at a whopping 5%. This figure was last seen in 2008.
June’s decision marks the 13th consecutive rise since December 2021, when the base rate rose from a mere 0.10% to 0.25%. That means it has increased by 4.9 percentage points in under two years.
Last month, we were hopeful that the increase from 4.25% to 4.5% would be enough to calm price rises as it marked the highest base rate in almost 15 years.
Unfortunately, we had sobering news this week as inflation failed to fall in May, and instead the rate remained at 8.7%. This is a far cry from the Bank of England’s goal of 2%.
These rising rates will hugely impact borrowers and those with a mortgage, as monthly repayments will continue to increase for those on a variable rate. If you have a fixed-rate mortgage, you will be unaffected for now, but then could be hit with all the increases at once when the mortgage-term is up for renewal.
This is in direct contrast with interest rates on savings accounts, as this update should be more positive for savers. As the base rate has risen once more, this should mean that interest rates on savings accounts will also increase.
However, banks are not required to increase rates to match the base rate and we have seen some accounts sticking to low rates. This is because banks focus on balancing the money they have in deposits with the amount they lend. If they need more deposits, then they might increase interest rates to entice savers.
If you are looking for a savings account that is matching or exceeding the base rate, then fixed-term accounts are the ones to consider.
Ahli United Bank via Raisin has a one-year fixed-term savings account at a competitive 5.70%, but it would mean locking away your money until the summer of 2024.
If you would prefer to access your money whenever you need it, then an instant or easy access account would be more suitable. Interest rates are lower here, with the top easy access standing at 4.11% from Oxbury Personal Easy Access Saver. These rates could increase as a reaction to the base rate but only time will tell.
In the past, we’ve seen interest rates on savings accounts have struggled to keep up with the base rate, which has left savers feeling disgruntled.
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.
In May, the base rate was at 4.5% and the average monthly savings rate was 3.31%. The average monthly rate for instant access accounts was also well below the base rate as that stood at 2.42%.
Today, the average monthly savings rate is 3.68% with the average for an instant access savings account at 2.66% - well below the 5%.
Overall, the latest increase could mean we see higher rates on savings accounts, but we are yet to reach the heights that savers would expect to soften the blow of increasing borrowing rates.
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.