Savers could have reason to celebrate the Bank of England’s decision to keep the base rate on hold for now.
For while many view changes in interest rates through the eyes of the cost of home loans, this group is outnumbered by savers by around seven to one.
The decision by the Bank’s Monetary Policy Committee (MPC) to keep the base rate at the current 16 year high of 5.25 percent suggests any falls in mortgage rates will be put back.
By contrast, savers are likely to benefit from strong inflation-beating returns for longer.
Currently, the top easy access accounts are paying interest of just over 5 percent, while some long-term fixed rate accounts are paying 5.25 percent.
These accounts are beating the current official inflation rate of 3.2 percent. And with the inflation rate predicted to fall to 2 percent in the coming months, now could be a good time to lock in to a long-term fixed rate savings account.
The best fixed-term accounts currently available – according to moneysavingexpert.com – include Atom Bank at 5.25 percent for six months, SmartSave at 5.18 percent for one year; SmartSave at 4.96 percentfor two years; and Birmingham Bank at 4.73 percent.
Karen Noye, mortgage expert at Quilter, said: “Though banks and building societies were relatively slow when it came to passing on higher interest rates, the same is unlikely to be said when it comes to lowering them.
“For those looking to lock their money away for a fixed term, it is a good idea to explore the interest rates available now as they are unlikely to remain at current levels for that much longer.
“If you have cash savings held in account without a fixed rate then it is also important to be aware that the level of interest you are currently earning will likely fall, so you should explore other options to ensure you are making your money work as hard as possible.”
Alternatively, she said: “If you have excess savings held in cash that you can put away for at least a few years, you may wish to consider investing it.
“Putting money to work in the stock market gives it the best chance to grow, and the sooner you invest and the longer you do it for, the more likely you are to have the potential for healthy returns.”
On mortgages she said: “We have been anticipating a turning point in the mortgage and housing market as we approach the summer months, and though we are yet to see an interest rate cut, the additional vote in favour of one at the Bank of England’s latest monetary policy meeting offers a glimmer of hope that rate cuts are edging closer.
“This could have a positive impact on mortgage rates in the nearer term given lenders price in rate cuts ahead of time and it still looks likely one could materialise in the coming months assuming the data continues heading in the right direction.
“A fall in mortgage rates would present a more favourable borrowing market for those buyers who have been sitting patiently in ‘wait and see’ mode which could help buoy the market.
“However, it is worth noting that we are likely to see a gradual fall in rates as opposed to a sudden drop even if the BoE does opt to cut rates at future MPC meetings.
“In the meantime, there are options you can explore that can help lower your mortgage rate further, such as putting down a larger deposit to decrease the loan to value level which can often help you secure better rates.
“The length of time you fix your mortgage deal for can also impact the rate you pay.
“Many five year fixes will come with lower mortgage rates than a two or three year fixed deal.
“However, given we are likely to see interest rates start to come down within this timeframe, it will be important to consider the longer term as if rates drop in the coming years then you could end up paying more than is necessary in the longer run if you lock in for a longer initial term at a time when rates are still elevated.”
