What’s next for savings rates? This is what the experts predict

Savings rates have enjoyed a meteoric rise in recent months.

Since the beginning of May, the average one-year fixed rate increased from 3.96% to 4.83%, while the average easy access rate went from 2.06% to 2.49%.

This is Money’s best independent buying desks have been a hive of activity with banks and building societies battling for the top spot.

Our savings alerts service, which now has almost 16,000 registered dedicated savers, has been triggering best buy alerts on an almost daily basis.

Milestones have been reached and past predictions have been shattered.

In early May, the best fixed-rate savings offer hit 5 percent. Then, in the second week of June, easy-access savings rates topped 4 percent, and finally last week, fixed-rate savings rates crossed the 6 percent mark.

The era of a decade of rock bottom rates seems to be definitely behind us, at least when considering the best deals on the market.

Some savers may now be wondering if we might get a 7 percent flat rate before long. We may even see the best easy access rates reach 5 percent.

But there are others who believe that the music is about to stop. That we may be reaching the dreaded peak…

Why do rates go up?

Smaller banks and building societies rely on savers to finance their lending activities.

This has resulted in something of a price war at the top of the best buy charts, but how long this will continue remains to be seen.

The main driving force behind the rate hike has been the change in market expectations around how high the Bank of England will raise the base rate.

Financial institutions have revised their projections because inflation has remained higher than expected, forcing the Bank of England to continue raising the base rate to control inflation.

Last month, the bank increased the base rate from 4.5 percent to 5 percent. Markets now expect the base rate to rise to between 6% and 6.5%.

Kevin Mountford, founder and chief executive of savings platform Raisin UK, says: ‘Until recently, it looked as if UK rates were peaking.

“However, a number of factors, including continued obstinacy on inflation, have made it clear that the Bank of England will need to continue to boost interest rates.

“Hence the recent 50bp rise, plus there could be more to come, plus the chance of rates going down has narrowed to early 2024 at best.”

Will rates continue to rise or are we reaching a peak?

Predicting the future of savings rates will always be an inexact science, because a lot depends on how the economic situation develops.

The general consensus among industry experts is that savings rates will continue to rise in the near term.

Sarah Coles, personal finance expert at Hargreaves Lansdown, says: “We expect the Bank of England to continue to raise interest rates for the foreseeable future, and we generally expect easily accessible rates to rise at a time of rising prices.” the cups”.

“The most competitive banks usually take turns getting ahead of each other to attract more cash.”

Up again: The Bank of England has raised its base rate for the 13th time in a row since 2021

Whether they go up or down from now on will depend on the broader economic picture, according to Coles.

She adds: ‘If the inflation numbers match expectations, this will already be heavily discounted in one-year fixed rates, so we may not see any dramatic movement there.

“However, on the other hand, we could see signs of inflation easing a bit, so the Bank of England could pause rate hikes, and expectations of lower rates ahead could mean fixed rates start decrease”.

What do the experts predict for savings rates?

Mountford believes easy access rates are likely to improve between now and the end of the year.

He says: ‘The Bank of England base rate could be as high as 5.5 per cent or even higher by the end of the year and this will have a direct impact on easily accessible rates.

‘The top rate is currently around 4.35% vs 5% base rate so some banks will use market conditions to make a margin switch with the Bank of England and there will be more opportunities to exploit this in the future and as such the maximum rates could continue. to keep up with future changes.

“As such, I think we’ll see a 5 percent easy access rate over the next three months.”

As for fixed rates, Mountford believes we are nearing the peak.

He adds: “Fixed rates are harder to predict, but I don’t expect them to be much higher than they are now, although they could be as high as 6.25 percent before things slow down.”

Hargreaves Lansdown’s Sarah Coles broadly agrees with Mountford.

She says: ‘If inflation is super sticky, the best easily accessible savings rates can approach 5 per cent and the best one-year solutions could go as high as 6.5 per cent by the end of this year.

“The peak of the one-year correction is likely to be before easy access, because it is based on rate expectations.

Inflation remained stuck at 8.7 percent in the 12 months to May, beating the Bank of England’s forecast of 8.3 percent.

However, Coles points out, there are no guarantees that the Bank of England will raise rates as much as the market expects.

“Any news that inflation has started to move more significantly could depress rate expectations, which would lower fixed rates more quickly,” it adds.

Andrew Hagger, a personal finance expert at MoneyComms, thinks easy-access rates will top out at around 4.5 percent and around 6.25 percent for fixed-rate savings.

He says: ‘Until inflation is deemed to be back under control, the base rate could rise further when the next MPC meets on August 3.

“In the meantime, we could see easy access rates top 4.5 percent and one-year fixed rates near 6.25 percent by the end of this month.”