A survey of 2,000 Brits has revealed that some have no idea how much they’re actually making on their savings. In fact, 20% think they make more than 1% on their easy access account despite the fact that the best rate on offer is currently 0.66%.
This means that if competitive savings offers hit the market later this month, some savers might miss out. Here’s what you need to know.
Are interest rates going up in 2021?
During his Autumn Budget speech, the chancellor explained, “Inflation in September was 3.1% and is likely to rise further – with the OBR expecting CPI to average 4% over next year.
“Two global forces can explain the majority of this rise in inflation. First, as economies worldwide reopen, demand for goods has increased more quickly than supply chains can meet. And second, global demand for energy has surged at a time when supplies have already been disrupted, putting strain on prices.”
He added, “I understand people are concerned about global inflation – but they have a government here at home ready and willing to act.”
The Bank of England’s Monetary Policy Committee (MPC) unanimously voted to maintain the bank rate at 0.1% on 23 September 2021. Though uncertain, the chances are high that when the MPC next meets on 4 November 2021, the rate might be raised to curb inflation.
Economists are now factoring a rise in interest rates into their decision-making to be on the safe side.
What happens to savings when interest rate increases?
When interest rates increase, borrowing becomes more expensive, meaning more people resort to saving. This slows down the economy and reduces inflation. You might also notice an increase in competitive savings account offers as providers try to outdo each other.
How can you get the most out of your savings?
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, highlights that one of the main problems is not knowing how much we earn on our savings.
She explains, “Our lack of connection with savings means we’re less likely to have an eye on the market when the Bank of England makes a change.
“If we already think we’re making 5%, we might think there’s no need to get excited if the base rate rises to less than 1%. It means we may well miss out on a raft of competitive offers set to hit the market.”
She recommends confirming what you’re currently making on your savings and comparing it with what other savings accounts offer.
It could also be a good idea to stay alert for competitive savings account offers. This will particularly be the case if the MPC votes to raise the base rate. And if it doesn’t, you can always review different savings accounts to find out whether you’ve got the most competitive deal.
You can also check out The Motley Fool’s banking and savings resource for an informative guide on savings accounts and a list of top-rated providers. Use the free savings calculator to find out how much you can earn from the different savings accounts on offer. This will help you choose the best account for your savings needs.
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About the author
Victor is a freelance writer who loves to read and write about personal finance and related disciplines with the aim of educating people to make better financial and investment decisions.
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