You’d struggle to believe it if you read the papers, but a base rate increase isn’t all bad news.
Each time the Bank of England raises interest rates, savers see better returns on their cash – and with more of us being savers rather than borrowers, the rate rise shouldn’t bring doom and gloom to everyone.
An interest rate rise is especially good news if you are a saver and you don’t have a mortgage as banks and building societies should pass on any rate hikes to their customers.
Of course, many of us do have mortgages so it’s a bitter sweet pill – but if you are a regular saver it’ll pay now more than ever to do some research and make sure you’re getting a good deal.
What with the arrival of several new players from Europe competition for your money is on the increase so there are plenty of things to watch out for. We take you through the key points
Saving isn’t an exact science – watch the rates and your provider
Savings providers should in theory at least be able to pass on the recent interest rate increases to savers by the start of February.
Unfortunately research has shown that’s not always the case – so keep an eye on the rate you’re getting and if don’t see it rise while others do, you’re not getting the best deal.
Some accounts such as IceSave.co.uk from the Icelandic firm Landsbanki tend to pass on any increases straight away and many others will manage to alter things within a week.
However it is becoming more common for providers to choose not to pass on the increase. This is of course good news for borrowers as their mortgage repayments won’t be affected by the rate rise, but not so good for savers looking to make their money work harder.
And some firms that say they have increased rates won’t pass on the increase to all their accounts – so make sure yours isn’t one of the accounts they missed.
Not everyone has got the same increase either. The Bank might have raised rates by 0.75 per cent since August but accounts have seen a variety of increases depending on the provider.
The tricks of the trade
It’s all about profit margins. Put simply if a bank or building society doesn’t pass on the full benefits of the rate rise while hitting borrowers with a full increase, they pay out less to savers and take in more from borrowers. They’re quids in.
Saving yourself from being caught out
The tricks of the trade are part and parcel of saving and borrowing and shouldn’t distract you from making your money work as hard as possible. The bottom line is, you need to make as much money as possible.
The best rates on instant access cash are currently as much as 5.65 per cent before tax. That means if you’re earning anything below 4.5 per cent you might want to consider switching.
Most of us don’t have the time to keep switching savings accounts just to earn a bit of extra cash so it can make sense to stick with a savings firm if they are paying a decent rate and 4.5 per cent is good enough.
Ditch them if they don’t treat you fairly
Banks aren’t loyal to you, so don’t feel you have to be loyal to them. If you don’t see the benefits of the base rate rise in the next few weeks, you’ll be getting a poor deal.
There should be no excuse for not responding to the increased interest rates within a month or so.
Check the best savings rates online now and if it’s not up to scratch move elsewhere.