Savers left underwhelmed by base rate rise

The Bank of England's decision to increase the base rate earlier this month should have theoretically been positive news for savers, yet they're as yet largely underwhelmed, with providers having taken an unenthusiastic approach to passing on the rate rise – and inflation isn't exactly helping matters.

Inflation takes its toll

Statistics released today show that the Consumer Price Index (CPI) remained at a five-year high of 3.0% in October, unchanged from September, which means that the cost of living is still 3% higher than it was a year ago. Unfortunately, this also means that savers' cash is still being eaten away by inflation, as there is not one single standard savings account on the market paying a rate that can beat or even match it.

Essentially, this means that even with the best savings rate, savers are still losing money in real terms. Indeed, the top-paying fixed rate bond (from BLME) pays an expected profit rate of 2.55%, well below inflation, and savers will need to lock their money away for seven years for the privilege.

Savings uptick?

Nonetheless, we saw a few encouraging signs during October in terms of rate rises, but interestingly, this positivity hasn't continued to the same level in the weeks since the base rate hike, which goes against what many people would have been hoping.

Our figures show that a total of 150 rate rises were recorded in October compared with just 28 rate cuts, with some deals increasing by as much as 0.85% and meaning that rate rises have now outweighed cuts for 10 consecutive months.

As the table below shows, the number of rate rises excluding ISAs totalled 90 for the month, yet so far in November we've seen just 39 rate increases, despite the rise to base rate; it may have been hoped that the rate rise would encourage providers to be more prolific in their own rate-boosting activities, but so far, this doesn't appear to be the case.

To make matters worse, variable rate savings accounts, which include easy access and notice accounts (excluding ISAs), have seen very little in the way of rate rises since the start of 2017, and with the average variable rate having only increased by 0.21% so far this month, there's still a way to go before providers – and rates – catch up with base rate.

Source: moneyfacts.co.uk

"While we have nearly reached the halfway point of November, there are bound to be some savers who have yet to feel any effect of the Bank of England's rate rise, whereas they will be feeling the full force of inflation eroding their cash," said Rachel Springall, finance expert at moneyfacts.co.uk.

"Not only that, but savers may not have noticed the disappearance of some Best Buy savings accounts, which have been entirely withdrawn from sale and are yet to return to the market. These include easy access accounts from Post Office Money, Ulster Bank and Virgin Money which were paying 1.27%, 1.25% and 1.21% respectively, at the time some of the best rates in the variable market. In addition, some providers actually cut the rate on their easy access account before the announcement, with Halifax for instance dropping its rate from 0.25% to just 0.05%."

Lack of urgency

This all seems to indicate that base rate rises aren't being treated as much of a priority, especially when compared with rate cuts. For example, when the base rate dropped to 0.25% last August we recorded over 300 savings rate cuts in the weeks following it, yet we've seen just 49 rate rises since the start of November. Even among those providers who have announced rate rises, many won't be implementing them immediately, so many savers will see little difference until December at the earliest.

And let's not forget that savings rates remain paltry by historical standards, so even if you're hoping that your provider will pass on the base rate rise, you may not see much in the way of a payoff. "Even a rise of 0.25% isn't too much to celebrate, considering the interest earned on £1,000 would be just £2.50 more," said Rachel. "Savers need the banks to want their cash again and compete with decent returns after years of disappointment thanks to Government lending initiatives.

"Some of the biggest banks in the country have yet to announce whether they will be passing on the rise to their savers at all. While they drag their heels, it's as good a time as any for savers to check out the Best Buys and consider switching to something more worthwhile."

What next?

Inflation may be taking its toll and providers reluctant to pass on the base rate rise, but this just makes it more important than ever to make sure you're getting the best savings rate possible. Compare accounts using our Best Buys or savings search tool to find the best deal for your needs, and you may even want to think outside the box with things like high interest current accounts or stocks & shares ISAs for the potential of inflation-beating returns.