FINANCIAL experts have urged Brits to lock some of their money into the best available savings rates before next week’s widely anticipated interest rate cut from the Bank of England, cautioning that banks are quicker to reduce savings rates than mortgage rates. They also warned about the impact of ‘fiscal drag’ in the years ahead.
Laura Purkess, Personal Finance Expert at Investing Insiders, said: “When the base rate is cut, the first thing most of us will notice is our savings interest rates going down. Banks are typically much quicker to slash savings rates in response to a cut than to reduce mortgage rates.
“The only real weapon savers have in their arsenal to combat this is to switch to top-paying accounts, as firms will be forced to offer better rates to attract customers back again. Giving in to inertia allows banks to get away with it.
“It may be a good idea for anyone with a long-term savings horizon to consider locking some of their cash into a top-paying fixed rate bond now, before rates inevitably fall.
“But higher earners with substantial savings should consider maxing out their ISA allowance first to minimise any tax owed. Make sure to get the best rate on the market, as some cash ISAs are still paying around 4.5%.”
Samuel Mather-Holgate, Managing Director at Swindon-based Mather and Murray Financial, a wealth manager, also advised people to act now.
He said: “It’s expected that Andrew Bailey has seen the light and will lead his merry men to a base rate cute next Thursday. Some on the Monetary Policy Committee may even vote for a 0.5% cut.
“While a cut, whether of 0.25% or 0.5%, will be great news for many homeowners, it means savers need to act now. Fixing into a long-term savings account could be the best course of action as rates are expected to fall further in 2026.”
Fiscal drag impact on savers
Meanwhile, Caitlyn Eastell, Spokesperson at Moneyfactscompare.co.uk, warned savers about the impact of fiscal drag.
She said: “Over the next few years, millions of savers will be hit hard by fiscal drag as basic-rate payers move up to higher income tax brackets now that the thresholds are frozen until 2031. As a result, their Personal Savings Allowance (PSA) will halve.
“With inflation still running above target, plus potentially footing an unexpected tax bill, this may mean that savers’ nest eggs could rapidly be losing ‘real’ returns.
“While fixed bonds typically pay higher rates, they don’t provide the same tax benefits as cash ISAs. On average, savers paying the higher-rate only have a £500 PSA, meaning those with around £14,500 in their savings may wish to consider switching to an ISA to ensure their whole balance is protected as they currently have a £20,000 tax-free allowance.
“Cash ISAs are popular among many savers, with the latest Money and Credit Stats from the Bank of England revealing that an extra £4.2 billion was deposited into cash ISAs during October. This acted like a second ISA wave amid the now confirmed tax-free allowance cut.”
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