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Hopes dashed as banks fail to pass on interest rate hike | Money


Jhe recent unexpected rise in interest rates could have been the good news that savers had been waiting for so long. But more than five weeks after the Bank of England raised rates, only four financial firms have passed on the full hike to all or nearly all of their variable rate savings account customers.

The Bank decided on December 16 to raise the key rate from its all-time low of 0.1% to 0.25%, suggesting that it would be passed on.

But several banks and building societies raised rates on just one or a handful of accounts in the weeks after the decision, and some even cut them.

According to financial data provider Moneyfacts, only building societies in Suffolk, Newcastle and Cambridge, and Atom Bank, raised rates by 0.15% on all or most of their ranges.

This leaves the vast majority of long-suffering savers waiting for a hike that may never come. Some commentators say that isn’t likely to change any time soon, although – as many expect – the Bank announces a further increase on February 3.

Analysts expect further hikes this year to take the base rate above 1%.

Adrian Lowery, a personal finance expert at investment platform Bestinvest, says that “most big banks aren’t interested in attracting deposits from savers…and will therefore likely refuse to pass on base rate hikes from significantly”.

This is echoed by Sarah Coles, personal finance analyst at investment firm Hargreaves Lansdown, who says: “Banks have a lot of cheap government money so they’re in no rush to raise rates to attract more savers”.

Even if providers raise prices, rising inflation will eat away at the value of savings. On Wednesday it appeared it had jumped to 5.4% – the highest in almost 30 years.

Moneyfacts says no standard savings account can exceed 5.4%, but adds that getting the best deal is key to mitigating the impact of the rising cost of living.

“It is imperative that savers continue to monitor and change if they are on a low rate,” says Rachel Springall of the data provider.

The Ipswich-based Suffolk Building Society said all of its currently available variable rate savings accounts had 0.15% added as of January 4.

The Newcastle Building Society says it will apply the hike to the majority of its variable rate savings accounts, meaning 97% of those who have one will benefit from it from February 1. However, two recently launched accounts – Triple Access Saver and Monthly Access Saver – will not see an increase.

Atom Bank has increased the rate on its Instant Saver Account (its only variable rate account) from 0.15% to 0.65%, making it one of the best easy-to-access rates available.

The Cambridge building society says it will increase its instant access, your saver, first account and 100-day notice accounts by 0.15% from Tuesday.

And the Yorkshire Building Society, which has almost 3 million customers, says it is adding 0.1% to its variable rate savings accounts on February 1.

Most experts say everyone should aim to have money in an easily accessible account to provide a financial safety net. Unfortunately, some of the biggest – including Lloyds Bank’s easy saver, HSBC’s flexible saver and Halifax’s daily saver – only pay 0.01%.

There are providers offering much more, although some have restrictions. Topping the list at the time of writing was the Shawbrook Bank Easy Access account, paying 0.67%, although the minimum opening balance was £1,000 and the minimum withdrawal was £500 £.

Be aware that savings products come and go very quickly, so you may need to act quickly. The Chip financial app offers an easy-to-access account with a relatively good rate, although it was reduced last week from 0.7% to (a pretty good) 0.61%.

Marcus from Goldman Sachs has an online savings account that pays 0.6% and you can start with as little as £1. This includes an interest bonus of 0.1%, fixed for the first 12 months.

If you want a return above 2%, you will usually have to lock in your money for several years. There are a number of five-year fixed rate savings bonds paying just over 2%, from Charter Savings Bank, Hodge Bank, InBank and Monument Bank.

Some of the best rates are offered by regular savings accounts, where you put money aside each month.

If you have a NatWest current account, you can apply for its regular digital saver, which pays 3% on balances up to £1,000 (and just 0.01% beyond that). You can withdraw your money at any time, but you can only deposit £50 per month.

Similarly, Nationwide and TSB have regular savings accounts for current account customers that pay 2%.

The Yorkshire Building Society launched a regular savings account last week with a lower rate than that – 1% – but offering an added benefit: the chance to win a cash prize of £1,500 each month. There will be 11 draws, at the beginning of the month, between March and January 2023, with the account maturing in one year. This easy-to-access account, called make me a saver, allows customers to pay up to £150 a month.

National Savings & Investments (NS&I), which raised rates on three accounts on Dec. 29, was quick enough to react to the rate hike. Its direct Isa, direct saver and income bonds now all pay 0.35%. The Isa previously only paid 0.1%, while the other two offered 0.15%.

These are far from optimal – but it is possible that NS&I will soon have to increase them again to get more people through. Indeed, it has an official target of raising around £6bn in 2021-22. In October, halfway through the current financial year, it revealed that it had so far raised just £0.6bn.