Martin Lewis has just revealed the best course of action for people looking to set up a savings accounts after this week’s interest rate news.
The MoneySavingExpert was speaking to ITV’s Good Morning Britain on Friday following the Bank of England’s decision not to raise interest rates for the first time in almost two years.
The Bank chose to leave the interest rate at its current level of 5.25% – after 14 consecutive hikes – following the surprising fall in inflation over August, down to 6.7%.
To refresh your memory, an interest rate is the cost of borrowing money, and the base rate, usually copied by other banks, is decided by the Bank of England.
High rates therefore mean people with mortgages and credit card debt will have to pay their lenders more interest.
But, high rates also mean those with savings get more return on their money in the bank.
If you have a variable savings account, you can get money out whenever you choose – but your interest rates will fluctuate with the Bank’s base rate.
If you have a fixed savings account though, you can get more bang for your buck.
That’s why, after the Bank’s announcement, Lewis said: “The most urgent people who need to think about this are savers.”
He explained if you open up a fixed savings account right now, and then you have usually a week or two weeks (or sometimes up to a month) to fund it – and you can take your money out if you change your mind.
For those looking for fixed savings accounts where you can keep your money safe for a year or two, the financial expert advised: “You go and open a top fixed savings account now, open it – but if you want to see what happens if the interest rates and other saving rates are going to come down, you don’t fund it until the last minute.
“So you can have the facility available, at today’s high rates.
“And if the rates do drop, you can plonk your money in there, and you’re locked in on that rate for a year or two.
“And if rates don’t drop or even if they went up the other way – unlikely but it could happen, markets move all the time – well, then you just open another account and you don’t put your money in this one.”
Lewis also predicted that saving rates will drop after the unexpected announcement from the Bank of England.
“We think, nobody knows that means the top fixed savings rates are likely to shave down a little bit,” he said.
Interest rates are currently at their highest rates since March 2008 – and they’re unlikely to stay that way for long, so it’s worth acting now if you want to boost your savings.