Savers can help combat the recent hike in mortgage costs — by taking advantage of a rise in savings rates.
Savings rates are higher than they have been for more than a decade, and could rise further still following an expected increase to the Bank of England base rate tomorrow.
Savers now have the opportunity to max out their interest to help soften the blow of rising mortgage rates. They could also grow their nest egg to help pay down some of their mortgage before payments rise.
For example, just over £42,000 in a top-paying one-year bond paying 5.6 per cent would earn you £200 a month in interest, before tax.
Alternatively, you would earn the same amount, tax-free, if you transferred £50,739 to the top-paying, one-year fixed rate Isa, currently 4.73 per cent, from UBL UK.
Savers now have the opportunity to max out their interest to help soften the blow of rising mortgage rates
You can pay up to £20,000 into an Isa in any one tax year, but you can transfer money held in Isas from previous tax years into new ones that offer better rates.
However, there is no guarantee your savings provider will pass on any increase in the base rate. The biggest laggards are High Street banks with their standard easy-access accounts.
Be prepared to shop around — and consider putting your money with a challenger bank to get the best rates.
For example, Shawbrook Bank is offering one of the top easy- access account rates, available online, and paying 3.91 per cent.
You can earn an even higher 4 per cent from Coventry BS’s new online account — as long as you don’t make more than four withdrawals a year.
If you can afford to lock away your cash for a year, you can benefit from a rate of up to 5.7 per cent with a one-year fixed-rate bond. This is offered by Raisin, an online platform where you can hold several savings accounts in one place.
Rates could soon go higher still. That is because the nine-strong Bank of England Monetary Policy committee is expected to raise its base rate to a 15-year high of at least 4.75 per cent tomorrow.
Research from challenger bank Atom reveals that half of adults have never switched savings accounts — so are losing out on better deals.
Rising mortgage rates could be the perfect catalyst finally to make the switch, as the higher rate of interest paid on savings can help tackle the loan costs.
Rachel Springall, finance expert at Moneyfactscompare, says: ‘Loyalty does not always pay. Some of the biggest banks are paying less than the market average of around 2.15 pc. Now might be the time to seek out a better paying offer.’
The big five posted combined profits of over £5 billion in the first quarter of this year, with most of the profit coming from pushing up mortgage rates at the expense of savers.
These banks have around two thirds of the £959 billion held in easy-access accounts, but pay a fraction of what you can earn elsewhere. Some, including Barclays, Virgin Money, Santander, Lloyds and Halifax, still pay less than 1 pc on easy-access accounts.
Halifax Everyday Saver pays 0.95 per cent on sums up to £10,000, and 1.05 per cent of between £10,000 and £50,000 from the end of last month. Along with Lloyds, it raised its rate by just 0.05 percentage points following the latest 0.25 point base rate rise.
HSBC has raised rates on some accounts by as much as 0.75 percentage points, but the rate on its Flexible Saver account remains at 1.35 per cent.
Anna Bowes, from Savings Champion, says: ‘With interest rates continuing to rise, it is important to make sure your account is not holding you back. It’s easy to switch accounts. Just open a new one and then move your money.’
Even some of the big banks pay decent rates on some of their easy-access accounts — as long as you obey the T&Cs.
Barclays Rainy Day Saver pays 5.12 per cent on up to £5,000. The account is open to its current account holders who are with its Blue Rewards scheme.
HSBC Bonus Saver pays the equivalent of 3.96 per cent on up to £10,000 in the months you don’t make any withdrawals. When you do, the rate is 1.34 per cent.
NatWest Digital Saver pays 6.17 per cent on the first £5,000. It is a regular savings plan where you can put in between £1 and £150 a month.
Halifax upped its easy access Bonus Saver rate to 3 per cent yesterday. You are limited to three withdrawals a year. After 12 months, your money is moved into Halifax Instant Saver, which pays as little as 0.95 per cent.
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