How to find the best savings rates for you as deals improve dramatically: Sarah Coles
Unfortunately, even if we cling to this hope, other worries await us: will these rates last? Will they keep going up? And should we fix for a period now in order to get a better rate or wait for something even more rewarding?
It’s a welcome change to have good news for savers. At the time of this writing, the most competitive access rates were up around 2.5% and the most competitive one-year fixed rate in the market at 4.2%. Compare that to a year ago, when easy access was just a fraction over 0.5%, and a one-year fixed rate at 1.5%. Even in August of this year, you would have been happy with easy access at less than 2% and a one-year fix at less than 3%.
For your emergency savings, it’s not hard to upgrade to an easy access competitive account and make the most of these offers.
However, once you have three to six months of essential expenses (or one to three years in retirement), you need to decide what to do with any other savings. It’s usually worth considering locking up some money in a fixed rate account in exchange for a higher interest rate, but it’s incredibly hard to tell whether you should fix current rates or expect them to increase further.
Admittedly, savings rates have not yet finished rising, as market expectations have not been fully priced in. You can see where this is at by looking at the swap market – where banks swap a variable rate for a fixed rate. Right now, the market price for 12-month swaps is close to 5%, indicating that there are more rate hikes on the cards.
Waiting for a better fixed rate is a perfectly reasonable approach, as long as you know what rate to expect, as it’s notoriously difficult to spot when rates have peaked. The savings market tends to go up little by little. No bank wants to pay more than necessary to attract new deposits, so they take turns moving forward. This means that instead of getting a sharp rise in rates when the Bank of England raises rates, we instead get a constant reshuffle. This means it’s incredibly difficult to know when the shuffle will stop until it starts to come down again.
When are you ready to repair?
Instead, it’s worth making a decision about what interest rate you’d be happy to set, within reason, so that when you reach that point, you’ll be ready to set it.
In theory, for many savers, we may be getting closer to that point. When we asked people how much extra interest they would need to earn before considering a solution, they said an average of 4-5%. For someone whose money is languishing in an easy-to-access in-branch savings account, rates are knocking on that door. Most pay around 0.4%, so a switch to the most competitive one-year solution would earn them an additional 3.8% interest. Those in a Barclays Easy Saver could earn 4.05% more.
In reality, it may take more than that. When we polled people in April, half of those who opted for easy-access savings said they wanted to keep all their money close at hand just in case, while more than a quarter said said they used easy access because they felt more comfortable.
In an environment of high inflation, energy crisis and political uncertainty, it is not surprising that savers are nervous, so some may need a higher rate before considering a solution.
Whatever rate you decide to set, keep in mind that increases will not occur at breakneck speed. Not only do banks not want to raise rates more than they should, but on the other side of the equation is the demand for loans. As rates rise, people will be less inclined to borrow at a higher rate, so they won’t need to raise as many deposits to fund the loan.
There are a few things that would speed it up. If a bank breaks ranks in an effort to attract large deposits, it will encourage others to follow suit. Meanwhile, if a much larger bank raises rates, it will take an inordinate share of available deposits, creating more pressure from those just behind to come out ahead. However, we have no way of knowing if either of these things are on the cards.
This means that you could wait a while to reach your target rate. And if your money languishes in an account that pays out a fraction of 1% in the meantime, you’ll lose far more of its buying power than necessary. This means you might want to upgrade to a Competitive Easy Access Account – where you can currently earn up to 2.5% – until you’re ready to fix.
That way, whatever happens to the rates, you’re covered. You’re getting the best possible rate right now in the type of account you’re comfortable with, and you have a plan to get a rate that’s right for you when you’re ready to lock it in. At a time like this, it helps to have one less thing to worry about.
Most of us are sick of talking about how the cost of everything is going up, and most couples would just like to ignore it and pretend it’s not happening. However, our research shows that the more we collaborate with a partner on important financial decisions, the better our chances of getting out in one piece.
The HL Savings & Resilience Barometer measures where we are in all sorts of areas of our finances, from debt to savings and whether we have enough cash at the end of the month. It then breaks down by whether people say the highest earner in the house makes big financial decisions alone, whether their partner does, or whether they manage things together.
He found that those who work together are better off financially than everyone else. Overall, about half of people say they have enough money left over at the end of the month, with that figure rising to almost two-thirds among couples who make big financial decisions together. Meanwhile, although two-thirds of people have enough emergency savings, that figure jumps to about three-quarters among couples who plan together. And while two in five are on track for a moderate retirement income, that rises to half of all couples who manage their money together.
When we plan ahead to see where people will be a year into the cost of living crisis, everyone is worse off, but the couples who are in it together tend to get away with it. much better. A year into the cost of living crisis, 57% of people will have enough savings, but for couples who work together, that figure rises to 69%. Meanwhile, overall only 12% will have enough money at the end of the month, but that figure rises to 16% among couples planning together.
Most don’t like the idea. Some prefer to leave money matters in the hands of the person who cares the most or understands them best. Others struggle to agree on finances. However, sharing big financial decisions means you’re more likely to have strong finances across the board, so it’s worth a try.
Sarah Coles is Senior Personal Finance Analyst for Hargreaves Lansdown and Podcast Host for Switch Your Money On