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- Experts expect at least one more cut in the base interest rate before the end of 2024
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Some major savings account and ISA rates have plummeted since the Bank of England cut the base rate to 5 per cent.
Headline rates such as Chase Bank 5.1 Percent Easy Access Savings Account and Easy Access ISA at 5.1 Percent Chip* have since been cut off.
While savings rates are falling across the board, these accounts have one thing in common: they track the Bank of England’s base rate.
End of an era? Base rate savings rates cut after Bank of England decision
These accounts have been popular with savers for their outstanding savings rates.
Tracking-based savings rates may make sense in an environment where rates are rising, as was the case between December 2021 and August 2023.
But the base rate recently fell for the first time in more than four years after the Bank of England opted to cut it on August 1, 2024.
The Bank of England cut the interest rate from 5.25% to 5% after seven consecutive decisions to freeze it. Before that, there had been 14 consecutive base rate increases since December 2021.
Tracker base rate savings accounts made a comeback about a year ago, when several providers including Kroo and Skipton Building Society launched these types of accounts.
But now that interest rates have been reduced, savers will wonder whether it is a good idea to have a savings account that follows the base interest rate.
Should you get rid of your tracking fee?
Whether or not to get rid of your savings account if you follow the base rate will depend on what happens to the base rate next.
Economists now expect at least one more cut in the base rate before the end of 2024.
If forecasts are correct, this could mean the base rate will fall to 4.75 percent by the end of 2024.
However, inflation has since risen back to 2.2 percent from the Bank of England’s 2 percent target, raising fears that the Bank of England may delay plans to cut interest rates.
James Blower of Savings Guru said: ‘With markets pricing in a base rate of 4.5 per cent over the next 12 months and 3.5 per cent to 3.75 per cent over the next five years, the next moves are very likely to be down, rather than up.
‘For savers, that means bonds that track a base rate, unless they track a rate close to the base rate, are probably not the best choice.
‘Chase has a spread of -1.25 per cent below the base rate and Kroo -0.90 per cent below the base rate, so neither of these look like great options for savings balances, given that Best Buy savings are between 0.10 per cent and 0.25 per cent below the base rate.
‘However, for those looking to earn good interest on their checking account balances, Kroo is a decent option, and Chase’s full package is also competitive — both are strong for day-to-day banking, but there are better options for larger savings balances.’
The best rate available at the moment is 4.91 per cent and is offered by Paragon Bank. This is a variable rate, so it could change at any time, but it is not linked to the Bank of England’s base rate.
The best easy-access ISA is also currently offered by Paragon Bank and pays 4.95 per cent.
How do base rate tracking savings accounts work?
A tracker base rate account has a variable interest rate and tracks at a margin below the Bank of England base rate. This is between 0.26 per cent and 1.15 per cent below the base rate for most tracker base rate accounts currently on the market.
This means that these agreements will rise along with the base rate as it rises. However, if the Bank of England starts to reduce the base rate, the interest will fall at the same rate.
Accounts that have a base rate tracker indicate how soon after a change in the base rate the savings rate will be reduced or increased.
For the Chase account, for example, the interest rate will change five business days after a base rate move, while Kroo’s interest rate will change within two business days. Chip will give savers 14 days’ notice of an interest rate change on their savings accounts.
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