Savers warned ‘loyalty does not pay' as Bank of England base rate held at 4.25%
Average savings rates have been on a downward path in recent weeks, but there was a ray of light for savers as some providers unveiled new products on Thursday.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: 'Loyalty does not pay so it comes down to savers to proactively review rates and switch their account if they are getting a poor return on their hard-earned cash.
'It is vital that savers look beyond the high street banks and instead take notice of the many challenger banks and mutuals competing in the savings arena.
'The biggest high street banks pay an average of 1.56% across easy access accounts, but even this pitiful return is being eaten away by inflation, which sits above its 2% target.
'It may be convenient to leave pots with such prominent brands, but it's costing savings in better returns available elsewhere.'
According to Moneyfacts, the average easy access savings rate on offer across the market fell from 2.79% at the start of May to 2.72% at the start of June, based on someone having a £10,000 deposit.
The average easy access Isa rate fell from 3.03% to 2.98% over the period.
Alice Haine, a personal finance analyst at Bestinvest by Evelyn Partners said: 'With interest rates still offering savers a decent return, it's never been more important to keep an eye on the personal savings allowance (PSA) – a threshold that's remained the same since 2016.
'Under the PSA, basic rate taxpayers can receive up to £1,000 of interest tax-free, while for higher rate taxpayers this is limited to just £500. Additional rate taxpayers get no PSA at all.
'Higher-rate taxpayers are particularly at risk of breaching the PSA, especially if they've secured one of the market's top-paying accounts.
'To sidestep an unexpected tax bill, savers should consider a more tax-efficient approach. Making full use of the £20,000 Isa allowance and boosting pension contributions can help shelter returns from the taxman, while also supporting long-term wealth goals.'
On Thursday, Yorkshire Building Society announced it had refreshed its range of fixed-rate saving options, including a one-year fixed-rate bond at 4.00% AER (annual equivalent rate), a 4.05% two-year fixed-rate bond, a 3.80% three-year fixed-rate bond, and a 3.70% five-year fixed-rate bond.
It is also offering a 3.75% one-year fixed-rate cash Isa and a 3.80% three-year fixed-rate cash Isa.
Harry Walker, senior savings manager at Yorkshire Building Society, said: 'With interest rate movements making it harder for savers to plan ahead, we're proud to offer fixed-rate options that combine strong returns with peace of mind.'
Another mutual, Skipton Building Society, has launched a 'bonus saver' easy access account, at 4.50%, which includes a 1.70% fixed bonus for the first 12 months.
The launch follows the introduction of Skipton's new cash Isa base rate tracker last week. The tracker is linked to the Bank of England base rate, currently offering savers a rate of 4.10%. The rate of interest is guaranteed to track 0.15 percentage points below the Bank of England base rate for 12 months from the first payment into the account.
The base rate hold on Thursday may disappoint some mortgage holders looking to switch to a new deal.
According to figures from UK Finance, around 1.6 million fixed-rate homeowner mortgage deals will end or have already ended in 2025.
The Bank of England has said interest rates 'remain on a gradual downward path,' despite being left on hold on Thursday.
Nicholas Mendes, mortgage technical manager at John Charcol, said: 'Markets still expect a cut or two later this year, possibly as soon as August,' although: 'The rate path is still anything but settled.
'Borrowers would be wise not to wait passively. If your current fixed deal is due to end this year, it's worth reviewing your options early, as some lenders allow new deals to be secured up to six months in advance.'
Mark Harris, chief executive of mortgage broker SPF Private Clients, said borrowers do have 'some good news … in that lenders have reduced mortgage rates and eased criteria in recent weeks.
'This rate hold was largely expected by the markets but if swap rates (which are used by lenders to price mortgages) fall, this will enable lenders to price their fixed-rate mortgages more keenly, easing borrowers' affordability concerns.'
Matt Smith, Rightmove's mortgages expert said: 'Lenders have a bit of room to reduce rates further even with a hold in the (Bank of England base rate) today so home movers can still be hopeful of some small mortgage rate cuts over the next couple of weeks.
'Average rates have been pretty flat in recent weeks, but we have seen increasing signs of competition amongst lenders as they have reduced their stress-testing criteria and with new mortgage products coming back to market, lenders are looking at ways to support more people get the home that they want.'
Jenny Ross, Which? Money editor, said: 'Anyone concerned about meeting their payments should speak to their lender as soon as possible – they're obliged to help.'
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Realising the benefits of investing to achieve long-term goals
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Britain has a problem. Millions of people are holding money in cash savings, and as a result are losing out on the potential long-term returns from investing. More than half of adults, 58 per cent, and equivalent to some 31.4million people are unwilling to face short-term losses on investments because they have low 'emotional' capacity for risk, new data from Interactive Investor reveals. Of course, watching your hard-earned cash fall in value when invested is tough to take, and for many this money is needed in case of emergencies, or simply to pay for day-to-day expenses. However, a third of those who said they didn't have the emotional capacity to take investment risk, as many as nine million people, do have the financial resilience to do so. Interactive Investor said this leads to these people 'under-investing', with 71 per cent of the 3,000 people surveyed owning no investments outside of their pension. Data from the Bank of England reveals that in May an eye-watering £280billion worth of cash was sitting in UK bank accounts earning no interest Richard Wilson, chief executive of Interactive Investor, said: 'Our research has unearthed a safety-first instinct among savers that presents a serious challenge for the UK. 'Millions of people have the financial capacity to invest, but don't believe it's worth the risk - over a lifetime that's likely to have a serious impact on their financial resilience. 'The dangers of not taking any risk are fast climbing up the political and regulatory agenda, and analysis shows that Britain has the lowest levels of equity ownership outside of pensions of any G7 country, with a disproportionate amount in cash and property.' In fact, as few as 12 per cent of people have a high emotional capacity for risk. A slightly higher proportion, 19 per cent, had a high risk tolerance. That phrase refers to how willing people are to accept the possibility of losses in favour of higher returns in the long term. Still, around 57 per cent of people still scored low for risk tolerance, meaning that they aren't willing to take risks for rewards in the long term, even when financially stable. Greg Davies, head of behavioural finance at Oxford Risk, said: 'Most people invest too little and take less risk than they could safely afford. This isn't about logic - it's about emotion. Emotional discomfort with short-term market ups and downs leads even financially resilient investors to underinvest. 'For those with high financial capacity, the emotional gap is often greatest: they could afford to aim higher, but their feelings hold them back.' Data from the Bank of England reveals that in May an eye-watering £280billion worth of cash was sitting in UK bank accounts earning no interest. The Chancellor, Rachel Reeves, has launched a campaign to promote retail investing among ordinary people, promoting investing over holding large sums of money in cash. Meanwhile, 'targeted support' reforms will come into play next year, offering tailored recommendations based on what people in similar financial circumstances are doing with their money. Along with this came fears that the Chancellor would scrap the cash Isa in a bid to push more towards investing. On the news that this wouldn't be the case - for now at least - savers breathed an audible sigh of relief. At the same time though, many resigned themselves to continuing to miss out on much higher returns. Interestingly, just three per cent said they would have a higher tolerance for investing if cash Isa tax benefits were slashed. Meanwhile, 41 per cent said they would invest if they had more money, while 16 per cent said they would do so if they understood investments better. While it Is recommended that savers only invest cash that they can afford to lose, as well as making sure that they build up an emergency pot and cash savings before doing so, many are sitting on cash pots earning no interest. Even when held in high interest accounts like cash Isas, the value of cash savings is gradually eroded as inflation outpaces the rates paid out by banks. Craig Rickman, personal finance expert at Interactive Investor, added: 'While people should only take on as much risk as is right for them, short-term emotional barriers often mean we don't take the risk that's right for our long-term needs.
