Better saving deals to help ease the mortgage rate pain

Savers can help combat the recent rise in mortgage payments by taking advantage of an increase in savings interest rates.

Savings rates are higher than they have been for more than a decade, and could rise further on an expected rise in the Bank of England’s key interest rate tomorrow.

Savers now have the option to maximize their interest rates to soften the blow of rising mortgage rates. They could also grow their nest egg to pay off part of their mortgage before the payments rise.

For example, just over £42,000 in a top-paying one-year bond paying 5.6 per cent would earn you £200 a month in interest, before tax.

Alternatively, you would earn the same amount tax-free if you transferred £50,739 to UBL UK’s top paying one-year fixed rate Isa, currently 4.73 per cent.

Savers now have the option to maximize their interest rates to soften the blow of rising mortgage rates

You can deposit up to £20,000 into an Isa in any tax year, but you can transfer money held in Isas from previous tax years to new ones that offer better rates.

However, there is no guarantee that your savings provider will pass on an increase in the base interest rate. The biggest laggards are High Street banks with their standard easy access accounts.

Be prepared to shop around – and consider placing your money with a challenger bank to get the best rates.

For example, Shawbrook Bank offers one of the best easy access account rates available online and pays 3.91 percent.

You can earn even more 4 per cent with Coventry BS’s new online account as long as you don’t make more than four withdrawals a year.

If you can afford to lock up your cash for a year, you can take advantage of a rate of up to 5.7 percent with a one-year fixed-rate bond. This is offered by Raisin, an online platform where you can hold multiple savings accounts in one place.

Rates could go even higher soon. That’s because the Bank of England’s nine-member Monetary Policy Committee is expected to raise key interest rates tomorrow to a 15-year high of at least 4.75 percent.

Research by challenger bank Atom shows that half of adults have never switched savings accounts and are therefore missing out on better deals.

Rising mortgage rates could be the perfect catalyst to finally make the switch, as higher interest rates on savings could help address borrowing costs.

Rachel Springall, financial expert at Moneyfactscompare, says, “Loyalty doesn’t always pay off. Some of the largest banks pay less than the market average of about 2.15 per cent. Now may be the time to look for a better paying offer.”

The big five posted a combined profit of more than £5 billion in the first quarter of this year, with most of the gain coming from driving up mortgage rates at the expense of savers.

These banks have about two-thirds of the £959bn in easily accessible accounts, but pay a fraction of what you could earn elsewhere. Some, including Barclays, Virgin Money, Santander, Lloyds and Halifax, still pay less than 1pc into easily accessible accounts.

Halifax Everyday Saver pays 0.95 per cent on amounts up to £10,000, and 1.05 per cent on between £10,000 and £50,000 from the end of last month. Together with Lloyds, it increased its rate by just 0.05 percentage point after the last 0.25 point increase in base rates.

HSBC has increased rates on some accounts by as much as 0.75 percentage points, but the rate on its Flexible Saver account remains at 1.35 percent.

Anna Bowes, from Savings Champion, says: ‘With interest rates continuing to rise, it’s important to make sure your account isn’t holding you back. It’s easy to switch accounts. Just open a new one and then move your money.”

Even some of the big banks pay decent rates on some of their easily accessible accounts – as long as you stick to the terms and conditions.

Barclays Rainy Day Saver pays 5.12 per cent up to £5,000. The account is open to current account holders who are members of the Blue Rewards scheme.

HSBC Bonus Saver pays the equivalent of 3.96 per cent on up to £10,000 in the months you don’t withdraw. Then the rate is 1.34 percent.

NatWest Digital Saver pays 6.17 per cent on the first £5,000. It is a regular savings plan where you can invest between £1 and £150 per month.

Halifax raised its easily accessible Bonus Saver rate to 3 percent yesterday. You are limited to three withdrawals per year. After 12 months, your money moves to Halifax Instant Saver, which pays out just 0.95 percent.

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