Have savings providers been passing on base rate hikes?

Savers with money in instant-access accounts could be missing out on the benefits of base rate rises, Which? analysis has found.

In theory, a base rate rise should be good news for savers. Yet despite the Bank of England (BoE) hiking the base rate from 4.25% to 4.5% on 11 May, our snapshot investigation found 233 out of 289 - or nearly 81% of instant-access accounts paid the same rate as one week before the increase. 

Shockingly, when we looked further back we also found that as many as seven accounts had the same rate they had a year ago, despite multiple base rate hikes over that period.

Here, Which? takes a closer look at how savings providers have reacted to consecutive base rate increases and reveals the best instant-access accounts to move to if you find your provider hasn't boosted your rate in a while.

How many providers have raised savings rates?

Using Moneyfacts data, we looked at rates of all instant-access products on 3 May 2023 and then checked to see what those same accounts offered on 17 May 2023 - one week after the BoE announcement. 

We found 233 out of 289 - or nearly 81% of instant-access accounts paid the same rates. There were just 56 accounts that had seen interest rise.

Hampshire's Online Easy Access account saw the biggest jump in rates - from 2.25% AER a week before the base rate rise to 3.50% AER a week after.

High street banks have come under fire recently for their dismal savings rates, so it may come as no surprise that we found only one of the 'big six' banks increased interest on its instant-access products since the latest base rate rise.

Barclays' Everyday Saver got a 0.05 percentage point boost. But with the account offering a paltry 0.7% AER, it's still well below the current average easy-access rate of 2.06% AER.

• Find out more: how to find the best savings account

Some rates haven't changed since 2022

When we compared rates for instant-access products on 17 May 2023 with those from 2 May 2022, we found interest on some products have remained at pitifully low levels.

A total of seven accounts out of 233 haven't budged for more than a year now, with Citibank UK Limited offering the lowest rate of the bunch - its Flexible Saver account for existing clients offers a tiny 0.01% AER. While Union Bank of India's Savings Account is well below average with a rate of 0.3%.

Two accounts have even seen rates slashed in the last 12 months. Citibank's Reward Saver for its 'Citigold' customers went down from 0.25% AER to 0.18%. While TSB's Save Well Limited Access Account reduced its rate from 0.39% AER to 0.25% - although savers get a higher rate of 3% for months where they don't make a withdrawal.

• Find out more: how to switch your savings account

How do average rates compare to last year?

The 12 consecutive Bank of England base rate rises since December 2021 have had a positive impact on variable savings rates in particular. Unlike fixed-term products, which have seen rates fluctuate, growth in instant-access accounts has remained consistently strong over the past year. 

The graph below shows the relationship between base rate changes and the average interest rates for instant-access accounts since May 2022, using data from Moneyfacts.

As the graph shows, average instant access savings rates have leaped by over one and a half percentage points since May 2022. Their upward trajectory also appears to align with consecutive base rate rises.

However, the gap between the two rates has grown progressively wider over the past 12 months, with the base rate now more than double the average interest offered by instant-access accounts.

What are the best instant-access savings rates?

The table below sets out the top restriction-free instant-access savings accounts.

As you can see, the top rate for an instant-access account is well above the current average rate of 2.06% AER. 

Challenger banks, building societies and Islamic banks such as Al Rayan are currently paying some of the best returns, so it is always worth considering the more unfamiliar brands that have the same deposit protections in place as a big high street bank.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, says: 'As we have seen over the years, loyalty does not always pay, and as some institutions increase their easy access rates through base rate rises and competition, some of the biggest banks are paying less than the market average of around 2%. It will be down to savers to compare their accounts regularly and move elsewhere if they are getting a poor return on their hard-earned cash.'

She adds: 'There have been significant improvements to the top rates over recent months, but easy access accounts remain a traditional home for savers’ cash. However, there are a few deals that limit the number of withdrawals someone can make, so it’s vital to compare terms and conditions carefully.'

• Find out more: what are the different types of savings account?

What's behind the savings rates changes?

Savings interest rates are partly tied to changes in the Bank of England (BOE) base rate. After a series of hikes seeking to reduce high inflation, the base rate is currently 4.5%.

When the base rate is high, savers' deposits offer banks a cheaper source of borrowing than the BoE. This often leads to providers trying to entice new savers by raising their rates. This is what we've seen over the last year, with new, market-leading savings accounts announced almost daily. 

It's now predicted the base rate will start levelling out and eventually drop later this year. As a result, savings providers are reviewing their market positions – particularly when it comes to fixed rates. Some longer-term accounts are now priced the same or lower than one-year bonds in anticipation of a base rate fall in the near future.

It's important to remember though that the base rate isn't the only influence on savings rates. A surge in demand for a product or increased competition from other providers can also push rates up and down. 

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