- Best easy-access rates could drop to 3% by June 2026 if forecasts are correct
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Savers are being urged to protect themselves against future interest rate cuts by considering moving some of their money from easy-access to fixed rate accounts.
While the strategy won’t be right for everyone, those who don’t need immediate access to all of their cash could benefit from making the switch.
Financial markets are pricing in two or three interest rate cuts this year with the base rate expected to fall from 4.75 per cent to as low as 4 per cent.
But analysts at two major US banks have now predicted the Bank of England is likely to cut interest rates far further and faster than markets are currently expecting.
It will make its next decision on rates on Thursday 6 February, which is tipped to be a cut from 4.75 to 4.5 per cent.
The Bank of England will make its next base rate decision on Thursday 6 February, and, if it is a cut as predicted, rates could begin to fall shortly after. If that happens, savings rates would be likely to start falling almost immediately.
‘Given this, savers who do not need access to their money should definitely consider fixing a proportion,’ says James Blower, founder of The Savings Guru.
What happens after next week is less clear, with two US banks having come out this week with predictions of bigger cuts than expected through 2025.
Morgan Stanley is forecasting UK interest rates to fall to 3.5 per cent by the end of this year, while Goldman Sachs says interest rates will fall to 3.25 per cent by June next year.
They believe that the UK economy will struggle over 2025 forcing the Bank of England to take action and cut rates more aggressively.
If it happens, savings rates are likely to take a hit, with the best rates falling drastically from where they are now.
What are today’s best easy-access savings rates?
The best easy-access savings accounts currently pay above 4.5 per cent. Some have no restrictions on taking out cash such as Chetwood Bank, which currently pays 4.66 per cent.
Others limit savers to a certain number of withdrawals each year.
For example, Atom Bank is paying 4.85 per cent on its Instant Saver Reward. Anyone who doesn’t withdraw earns 4.85 per cent, but make one withdrawal and the rate falls to 3.25 per cent for that given month.
> Find the best easy-access savings rates in our independent tables
Easy-access cash Isa deals pay even more whilst offering the added benefit of shielding any interest earned from the taxman.
Trading 212 is paying 5.12 per cent, Moneybox is paying 5.11 per cent and Plum is paying 5.01 per cent*.
On a £10,000 deposit that could mean over £500 of interest in a year if rates remain the same.
All three of these savings and investing apps offer FSCS protection for these accounts which protects deposits up to £85,000 per individual or up to £170,000 in the case of joint accounts.
> Best cash Isa deals: Compare the top rates
Fixed deals could guard against savings rate falls
At present, easy-access rates are marginally better than fixed rates. The best one-year fix for example pays 4.77 per cent while the best two-year fix pays 4.7 per cent.
If interest rates fall by 1.5 percentage points and reach 3.25 per cent in the first half of next year, as Goldman Sachs predicts, this is likely to be reflected across many savings deals.
Fixing in a rate now could protect against this.
> Compare the best-buy fixed savings rates
James Blower of The Savings Guru, says that if rates were to fall to 3.25 per cent, then easy-access savers with £10,000 put away could see their projected annual returns fall from between £450 and £500 per year to between £300 and £325.
He predicts that easy-access best buys could fall to around 3 or 3.25 per cent, while those with savings accounts at high street banks – which usually pay less – could be earning as little as 1 per cent.
Meanwhile, Blower says the top one-year fixed rates are likely to drop from 4.77 per cent today to around 3.5 per cent, and one-year Isas to just above 3 per cent.
He suggests savers who do not need access to their money should definitely consider fixing a proportion on the basis that interest rates could fall.
‘The challenge at present is that savers have seen fixed rates fall from above 6 per cent to below 5 per cent, with easy access rates now higher than fixed rates,’ adds Blower.
‘They feel there’s no reward for locking their money up and this is understandable.
‘However, the best buy easy access rates will fall back as the base rate reduces, so they shouldn’t expect their current rates to last.
‘Although the best one-year fix at 4.77 per cent may be lower than what was available last year, it’s likely to be well ahead of anything available in the summer.
‘JN Bank’s 4.80 per cent five-year fix looks incredibly mis-priced and, for savers able to lock in for the long term, I cannot envisage a scenario where this rate is beaten this year or next.’
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