What the 0.25% base rate hike means for your savings

As widely expected, the Bank of England's Monetary Policy Committee (MPC) has voted to raise the base rate by 0.25%. The move to 4.5% brings interest rates to their highest levels in almost 15 years. It also marks the 12th successive increase implemented by the MPC following a decade of historically low rates. While the decision impacts various parts of the financial landscape, it particularly holds importance for savers and borrowers.

The rate rationale

The hike stems from the Bank of England’s responsibility to maintain price stability and control high inflation. The latest UK inflation figure sits at a gloomy 10.1% which is contributing to a cost of living crisis and putting major pressures on many households.

By increasing the cost of borrowing, the central bank aims to curb excessive spending and temper rising prices. The Bank of England carefully analyses a range of economic indicators, inflationary pressures, and the overall health of the economy to come their MPC decisions.

Impact on savers

The decision to raise the base rate is generally seen as positive news for savers, particularly for those who rely on interest income as a source of financial stability such as retirees.

Following a base rate hike, other banks and financial institutions are expected to adjust their rates in response. This means savers can look forward to earning higher interest on their deposits, providing a boost to their returns. For some, this can encourage a greater sense of financial wellbeing.

Caution and considerations

An upward trend in rising rates offers a welcomed respite from the prolonged period of low interest rates. However, there are factors to consider that can influence interest earnings.

The MPC's decision can lead to increasing borrowing costs such as mortgage rates. If the expenses outweigh the savings interest earned, mortgage rates could potentially harm the gains made by savers. Elevated inflation will also erode the real value of cash, especially when savings are left stifling in low interest-bearing accounts.

A saver’s saving grace

As rates improve, there is no better time to adopt a proactive approach and reassess your savings strategy. By doing this, you can help combat competing factors when it comes to earning interest. One effective strategy is to shop around for the best rates available and move money around regularly. This technique can see your savings flourish and optimise your financial outcomes.

But opening bank accounts and moving money around is a chore that many put on the back burner. The saving grace? Cash deposit platforms – like Flagstone. With just a single application, savers can instantly access hundreds of accounts with several banks, and move money between them with a few simple clicks. Flagstone eliminates the chore of opening bank accounts and encourages your savings to grow.

Open a Flagstone account today if you’d like to see it for yourself.


This article is not advice. If you would like to receive advice on your savings and investments, consider speaking to a Financial Adviser.



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