After a decade of low savings rates, savers are starting to reap the rewards as banks continue to pay out more interest, and the good news is that more rate hikes are on the horizon
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Savers celebrate a double win as savings Interest rates are set to rise another 0.25 percentage points – after having already doubled in a year.
The Bank of England today hiked interest rates from 0.75% to 1% to help beat it runaway inflation eating up consumers’ money.
The increase means that the interest rate is now at its highest level in 13 years and that savers will receive higher interest rates.
This is because the interest rate, also known as the base rate or bank rate, is set by the Bank of England and factored into the fees or payments made by financial firms to customers.
A 0.25 percentage point rise means savings rates should rise by a similar amount, with banks free to decide when – and how much – to actually pass it on.
We have a complete guide on how interest rate hikes are affecting you here.
The policy rate was last at 1% in February 2009, but the Bank of England cut it to 0.5% in March 2009 and has stayed below 1% since.
A low interest rate meant financial firms lowered the interest rate they paid savers, leading to more than a decade of disappointing savings rates.
However, in the past six months there have been four rate hikes, leading to a spate of interest rate hikes in savings.
Rachel Springall of financial experts Moneyfacts said easy access accounts and ISAs are now paying more than double what they were a year ago.
The maximum rate for easy access accounts is 1.5% by Bank Chase.
Savers can open the account with no minimum deposit, in contrast to Gatehouse Bank’s second-best rate of 1.3%, which asks £1,000.
However, even the best savings offer pays a rate that is just below inflation currently 7% .
In real terms, this means that cash held in savings stores is losing money as the rising cost of goods and services outweighs any interest payments.
However, any interest on excess cash is still better than nothing.
The Bank of England aims to bring inflation down to around 2% within two years.
million people with mortgages and other debts will increase their payments as a result.
In December 2021, the interest rate rose from 0.10% to 0.25%, then to 0.5% in February 2022 and 0.75% in March, before rising to 1% today.
The Bank of England is raising the base interest rate to tackle rising inflation – the rising cost of goods and services.
But as the Bank of England tries to offset these rising costs, in the short term it means some Britons will pay more.
This is because mortgage lenders and lenders typically pass on changes in interest rates in full.
A 0.25 percentage point increase in the base rate may seem small, but it means the average mortgage costs an extra £175 a year.
People with fixed-rate mortgages are protected from this increase until the end of their term.
But it kicks in almost automatically for those who have adjustable-rate mortgages, or trackers, which, as the name suggests, track the base rate.
Lenders will also use the increase in the base rate to raise borrowing fees.
Why are interest rates changing?
The Bank of England sets the UK interest rate every month.
The base rate is basically a financial “lever” that the bank can pull to control the economy.
Rising interest rates mean borrowing becomes more expensive, so consumers and businesses save instead — which means spending falls and inflation falls too.
Lowering the base rate does the opposite by encouraging everyone to spend rather than save, leading to higher inflation.
The bank can also vote to leave the base rate unchanged and not change it.
It has been doing this independently from the government since May 1997.
But it’s still run by the government, which sets goals for it to achieve.
https://www.mirror.co.uk/money/small-win-savers-bank-england-26880000 Small win for savers as Bank of England hikes interest rates - how it affects you