Base rate tracking savings accounts disappeared a decade ago, but they’ve been making a comeback.
Digital bank Kroo launched a base rate tracking current account that tracks 0.9 percent below the base rate, while Wombat Invest launched an easy-access account that tracks 0.5 percent below.
Skipton Building Society has also launched a cash Isa tracker that tracks 0.55 per cent below.
Most surprising is that base rate tracking accounts are being launched at a time when experts believe we are at the top of the interest cycle, if not already.
Not the best time: Base rate tracking accounts are back on the market, but they may not offer as good deals as they promise if the base rate starts to drop.
A base rate tracking account has a variable interest rate and tracks with a margin below the Bank of England base rate.
This means it will increase with the base rate as it increases. However, if the Bank of England begins to reduce the base rate, interest will drop to the same rate.
Some economists predict that the base rate could begin to fall after the next base rate announcement, but that, of course, is not guaranteed.
Does a tracking account make any sense if we are at the top of the market?
Much of this depends on the margin between the tracking rate and the bank base rate.
For example, the deal with Kroo means he will earn 4.35 percent at the current base rate. If the base rate rises to 5.5 percent in November – the date of the next decision – the interest rate on the Kroo account will rise to 4.6 percent.
Andrew Hagger, founder of the MoneyComms website, says: “This isn’t a bad deal by any means, but to put it into perspective, there are more than 50 easy-access savings accounts paying 4.5 per cent or more on this moment”.
The best accounts at a glance
Easy access: Sampler – 5.05%
One-year fixed rate: NS&I – 6.2%
Fixed rate for two years: Ford Money – 6.05%
Easy Access Cash Isa: OakNorth – 4.75%
One-year cash Isa: virgin money – 5.85%
Two-year cash Isa: Kent Trust – 5.79%
The products presented in this article are independently selected by This is Money’s specialized journalists. If you open an account using links that have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.
Anna Bowes, co-founder of the Savings Champion website, says: “It’s interesting to see a number of new tracker offers launching now as we approach what many consider the peak of the interest rate cycle.”
But he continues: “At the moment, you can simply find better interest rates for untracked accounts, with easy access rates of over 5 percent available, and with the base rate near the top of the interest rate cycle, It may be that choosing a tracker simply means that it will be set to track the base rate as it falls again.
“Now may not be the best time, although perhaps you can open a tracker with a minimum amount, so that if savings rates start to fall faster than the base rate in the future, you have an account to which can come if necessary.”
Mr. Hagger agrees. He adds: ‘The thing to keep in mind is that, according to economists, we are very close to the peak of the current cycle of base rate increases, so rate movements over the next 12 to 18 years are likely. months are down.
“Savers actually want the base rate increases to be implemented in full, but when it comes to reductions, I’m sure they are less interested.”
Once again, savings rates are much more tied to movements in base rates.
But with the exception of some tracking accounts, we haven’t seen any variable rate accounts that pass along full base rate increases. And the increases that have occurred vary greatly from one bank to another.
For example, while Aldermore has increased the rate on its Double Access Saver from 0.75 per cent before the base rate began to rise, to its current level of 4.7 per cent, Barclays has increased the rate on its Everyday Saver from 0.01 per cent to just 1.16 per cent for balances of £10,000 or more, and 1.66 per cent for up to £10,000.
Is any tracking account worth it?
The tracking element of a savings account isn’t always as good as you might think, Bowes warns.
She says: Dudley Building Society’s Instant Tracker guarantees you will never be more than 5 per cent below the Bank of England base rate, but it currently pays just 2.5 per cent and the Market Tracker Saver interest rate from the Family Building Society is calculated by paying the average of the 20 best easy-access rates on the market.
‘But the new Wombat GB Bank Base Rate Tracker more closely tracks the base rate which pays 4.75 per cent, as it remains 0.5 per cent below the base rate, while the Kroo current account pays the 4.35 percent. This is a great rate on a checking account and is guaranteed to be 0.9 percent below the base rate.
‘United Trust Bank’s 180-day notice base rate tracker actually tracks the base rate, so you’re currently paying 5.25 percent at the time of writing, but as the name implies, you have to give 180 notice. days in advance to access your cash.
If the base rate reaches 5.5 per cent, Skipton Building Society’s cash Isa tracker will become the best rate on the market.
As a result, James Blower, founder of the Savings Guru website, says: ‘The Skipton account is definitely worth a look – it’s already only outperformed by 5 basis points.
‘The Kroo rate is very good for a current account, but there are several providers who pay 5 per cent or more for easy access, so even if the base rate reaches 5.5 per cent it will be far exceeded.
‘The current account is definitely worth considering, but, for money that is not needed for everyday expenses, there are better accounts.
But Blower believes track accounts are a sneaky way for banks to reduce rates without having to notify customers.
He says: “I think we may see more of these base rate linked accounts because we seem to be hitting peak rates, so providers may favor these linked accounts, which automatically reduce when rates go down, like a way to reduce rates without having to take any action or give notice to savers.’
Hagger says: ‘Tracker savings accounts are quite niche and I think their appeal is quite limited.
‘Although you know that your rate will always vary in line with the bank’s base rate, that doesn’t necessarily mean you’re getting a good deal.
“In the past there were issues with some banks not passing on rate rises in full, however the FCA is now taking a closer look at savings rates, with its 14-point plan launched in July, and the new consumer tax rules, I’m not sure this is going to be such a big issue in the future.
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