Two thirds of UK savings accounts fail to beat BBR

The Bank of England Base Rate (BBR) is expected to be held in light of global pressures, so savings rates may hold or improve in the short-term, according to Moneyfactscompare.co.uk analysis.

Savings market analysis

• Around two thirds (60%) of UK savings accounts fail to beat 3.75%, the Bank of England Base Rate. Savings rates might hold out in the short-term, but they have been on the downward trend over recent months.
• The Moneyfacts Average Savings Rate has fallen over the past 12 months. The rate was last above 4% in January 2024 (4.04%). This means, overall, savers could be losing money in real terms due to inflation, particularly if it rises in the months ahead.
• Savers with the most flexible pots will be losing money in real terms right now, and this could worsen if inflation spikes due to prolonged unrest in the Middle East. A fixed rate deal can provide peace of mind and a guaranteed return in the short-term.
• Year-on-year average rates across easy access and notice accounts have fallen, easy access rests below 3%. The average notice account and notice ISA rates are sub-4%.
• Fixed rates have been on the downward trend over the past 12 months, one- and five-year fixed bond and ISA rates sit below 4% on average. ISA season is breathing life into the market, as the average one- and five-year fixed ISA rates are up since the start of March.

Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said:

“Holding the Bank of England Base Rate may give savers a short respite, as providers could hold their ground until the future expectations of interest rates become clearer. Over the past couple of weeks, there have been more savings rate increases than reductions, most notably on one-year fixed rates, but the true benefit rests in the margins, so average rates are not moving much. The market needs stability and savers need to feel encouraged to build a nest egg. However, savers have been hit hard by cuts to the BBR, as less than half the market (40%) can now beat 3.75%. Many with the most flexible pots could well be losing money in real terms due to inflation. As caution over the future of interest rates continues, this could lead to fewer cuts to savings rates over the shorter-term, particularly fixed rate bonds or ISAs, as these take into consideration swap rate volatility.

“The ISA season will no doubt be shining a positive light on returns for the time being, in the run up to the tax-year end, so now is not the time for savers to be complacent. There are only a few weeks left to take advantage of the 2025/26 ISA allowance, where £20,000 can be shielded from tax, and this is ever more important due to fiscal drag. In April, the Personal Savings Allowance (PSA) will have been in force for a decade, yet the original allowances set in 2016 have never changed, despite higher interest rates. This means millions of savers will breach their limit, such as those becoming a higher-rate (40%) taxpayer will have to pay tax on any savings interest earned above £500. It is becoming increasingly vital for savers to seek advice on tax implications and how best to place their hard-earned cash to give them the best return.”