There IS a silver lining to the budget: savings rates will remain higher
- Some banks and building societies have already increased their rates
Savers are likely to be the big winners from Wednesday’s Autumn Budget.
The barrage of huge tax hikes and spending increases will undoubtedly hit household finances – but the good news is that it will keep savings rates high for longer.
As a result, inflation is expected to remain slightly above the Bank of England’s 2 percent target for the foreseeable future. This means that the Bank will take a more cautious stance in lowering interest rates than previously expected.
Winners: Savers are likely to be the big winners from Wednesday’s Autumn Budget
Before the budget, financial markets widely expected the central bank to cut the base interest rate from 5 percent to 3.75 percent at the end of next year.
Two reductions are planned for the end of this year, the first of which will take place as early as next Thursday, to 4.75 percent.
But now the Bank’s interest rate setters are now expected to sit on their hands for longer. Forecasters predict interest rates will reach 4 percent by the end of next year, with only one cut before 2025.
That’s bad news for borrowers, but good news for savers.
Some banks and building societies have already increased their rates since Wednesday. Trading 212 increased its rate from 5.1 percent to 5.15 percent
Sylvia Morris
Moneybox deals rose from 4.75 percent to 5.15 percent for new customers, including a 0.45 percentage point bonus for one year.
Paragon Bank launched a top-paying new account last month. The online account pays 4.87 percent, but limits you to two withdrawals per year.
However, some banks facing a wall of money have cut their rates. For savers, the advantage of cash Isas over regular accounts is that all your interest is tax-free.
With rates fluctuating everywhere, one thing is clear: check your easy-to-access Isa to make sure you’re earning a decent, competitive rate. If not (some pay a dismal rate of less than 2 percent), transfer your money to a better country.
Do not transfer it yourself by cashing it out, as you may lose the tax credit on your money. Instead, find a new provider and ask them to arrange the transfer for you. This will not take longer than 15 working days.
Fixed rate Isa deals have also gone up and down in recent days. Providers change the rates on these accounts according to the amount of money they want to bring in, rather than reflecting the Bank of England’s base rate.
This week Aldermore withdrew its top paying 4.5 per cent cash Isa for new savers, while Charter Savings Bank and Zopa cut their rates to avoid topping the best buy tables.
However, Shawbrook Bank, keen to attract your money, came up with a new one-year Isa interest rate of 4.5 per cent.
With a two-year interest rate you pay slightly less, but you can still earn more than 4.25 percent. Cynergy Bank raised its interest rate to a top 4.3 percent yesterday, within hours of Hodge Bank’s hike to 4.27 percent.
These moves followed Shawbrook Bank raising interest rates from a low 3.78 percent to a then-high 4.27 percent earlier this week.
The advantage of an account with a fixed interest rate is that you know exactly how much interest you will receive over the term. On easy-to-access accounts, you’ll likely see your interest rate drop when the base rate is cut next week.
Make sure you enjoy committing your money. With a cash-fixed Isa you can take it out during the term, but you will pay a fee for this.
If you use up your £20,000 cash Isa allowance this year, you’ll need to keep a regular account and you could end up paying tax.
Basic rate taxpayers can earn up to £1,000 in interest before having to pay tax, while higher rate taxpayers can earn £500. Additional earners do not receive any allowance.
The best easy-access rates come from Chetwood Bank at 4.86 percent, followed by Ford Money at 4.75 percent, where you can withdraw and withdraw money as you please and still earn these nominal rates.
Atom’s new Instant Saver Reward pays 4.85 percent, but the rate drops to the equivalent of 3.25 percent each month you withdraw.
Coventry BS pays 4.83 percent on its Triple Access Saver (Online) account and limits you to three free withdrawals per year.
On one-year fixed rate bonds, the highest rate of 4.8 percent comes from Union Bank of India, while the best two-year rate is Atom Bank’s 4.6 percent. You cannot withdraw your money from these accounts during the term.
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