Savers with big name banks such as Barclays and Lloyds have been encouraged to shop around as they could get a better deal elsewhere.
Matthew Parden, CEO of wealth firm Marygold & Co, warned that rates will likely continue to fall. He said: “It’s unlikely that the biggest banks will do anything other than reduce their savings rates – as evidenced by their actions since the UK base rate started falling again in 2024.”
He explained that it’s rare to see a big name bank at the top of the best buy tables, as the smaller banks and fintechs often have higher rates.
He said: “So competitive rates can be found, it’s just that there is a bit of admin involved to open a new account somewhere else. This can be enough to put many people off, especially if they believe that their ’high interest’ savings account is just that.”
He encouraged people to shop around to see if they can get a better deal, particularly with notice accounts where you may be able to get a better rate.
He said: “These often pay a better variable rate than easy-access savings accounts, however, they are still variable so rates will reduce if the base rate changes.
“Yet savers should also look at the terms and conditions carefully whatever account they open – as some accounts include easy access savings accounts which reduce the interest rate, or don’t pay a bonus rate if there are withdrawals in any defined period of time.”
He also said that fixed rate accounts may offer higher rates still, protecting you from falling rates, although your funds will be tied up until the end of the account’s term.
The base interest rate was dropped from 4.75% to 4.5% in the Bank of England’s latest decision, and Mr Parden warned it’s “likely” there will be further reductions this year.
He said: “Bank savings rates will follow the same trajectory, so it would be reasonable to expect savings rates to fall further still during the course of this year.”
Savers concerned about falling interest rates may want to consider diversifying where they keep their funds and to try investing.
Chris Beauchamp, chief market analyst at IG Invest, said: “We appear to be coming out of the period of higher inflation, and this means we all need to find ways to make our money work harder.
“It made sense to take advantage of the great cash rates on offer in recent years, particularly when compared with the rock-bottom rates of the pre-Covid years, but as dividends remain strong and cash rates come down, the attractiveness of the former has noticeably increased.”
He encouraged people to start investing sooner rather than later to get the best returns: “Almost everyone, except perhaps those for whom retirement looms.
“But those that will most benefit are the young. Of course, it’s hard to find the spare cash at that age, but it pays dividends (figuratively and literally!) to start early, to avoid the need to make much bigger allocations later in life.”
Looking at how much better your funds may perform by investing, Mr Beauchamp said: “Cash ISAs might get you 4%, but the stock market sees average returns over the longer run of 9% when dividends are included, though of course there is the risk of the volatility that comes with those returns.”
