Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk, said:

“Swap rates reflect the short-term positive outlook for interest rates as they have remained around their 30-day lows since December’s base rate cut. Providers will be relying on these to help price their products correctly. Following this, the market-leading one-year bond has seen its first cut since October, and its corresponding average rate has fallen to its lowest level since April 2023. If similar swap rate levels are sustained or fall further, savers should be prepared to see savings rates slashed over the next few weeks.

“Even slow and gradual base rate reductions can quickly catch up to savers. Two years ago, the market-leading rates paid well over 5%, and savers could now be enjoying over £1,100 in interest. In comparison, re-investing £10,000 for the same term now will leave them approximately £240 worse off by the time it matures in 2028.

“With savings rates set to drop, this may encourage some savers to stash their cash elsewhere. Just over two in five consumers keep their savings in their current accounts*. Most current accounts will not pay any interest on balances, and with inflation remaining above its target, these savers will quickly see their hard-earned cash lose value in real terms. Even though the best savings deals are being cut, they may still be a more enticing option for consumers who want to be rewarded for their savings. £10,000 in the top one-year bond will earn savers approximately £75 more compared to a high-interest current account paying 3.69%. It’s understandable that consumers may want to keep their money in reach in case of an emergency, so a fixed bond may not be for everyone, but even the highest paying easy access accounts exceed 4%. The new year is an ideal time for savers to reassess their savings habits and consider switching to new providers to ensure they’re getting a fair deal.”