Get ready to switch . . . your savings rates are set to fall

MANY savers can expect a round of brutal interest rate cuts to their accounts from this week – after the Bank of England base rate was slashed from 0.25 per cent to a record low 0.1 per cent just over a week ago.

Savings rates now stand at an average 0.54 per cent. A decade ago accounts paid interest of as much as 5 per cent a year on savings.

Although details about the latest cuts have yet to be revealed, some accounts were already having their rates trimmed.

One of the most popular deals – the Santander 123 account – is cutting rates from 1.5 to 1 per cent on balances up to £20,000 from May.

Customers will be charged £5 a month to keep the account, which allows you to earn £15 of ‘cashback’ a month.

Those keen to protect savings from inflation – which stands at 1.7 per cent – must now consider putting money away for a long time.

United Trust Bank pays 1.85 per cent fixed for five years while Investec pays 1.8 per cent for three years.

Sarah Coles, personal finance analyst at broker Hargreaves Lansdown, says: ‘There is every chance that big rate cuts are on the way, so it will be vital to keep an eye on what your savings account is offering, and to switch if a rate is suddenly slashed.’

To escape the savings rate gloom, many may be tempted by cash prize draws – be wary as many deals are becoming less attractive.

National Savings and Investments has announced it will slash the odds of anyone winning money with a premium bond.

Around 173,700 fewer premium bond prizes will be handed out from May, compared to the number that was pulled out of the bag by its computer ‘Ernie’ in February.

There will be five £100,000 prizes up for grabs in the May draw – down from the six offered in February. There will be 13,448 prizes of £100 being given to savers in May, compared to the 27,221 in February.

Other savings institutions are also trying to encourage savers to join them by offering monthly prizes.

Nationwide Building Society has a ‘start to save’ account paying 1 per cent and will enter anyone who pays in at least £50 a month for three consecutive months into a prize draw to win £100. Nationwide says if 50,000 people pay in £150 between April and June, the prize pot in July will be £75,000.

Halifax offers monthly prizes totalling £550,000 to savers with £5,000 in accounts. Another is the Family Building Society’s ‘windfall bond’ with customers given a chance of a monthly prize of £50,000 if they have at least £10,000 in an account. To guarantee higher rates of return, savers may also consider moving money to fixed-rate bonds and tax-friendly Individual Savings Accounts. But be quick as deals could soon be withdrawn.

According to rates scrutineer Moneyfacts, one-year fixed rate bonds currently pay an average of 1.1 per cent, while two-year and five-year bonds pay an average of 1.17 per cent and 1.49 per cent respectively.

But rates on new accounts could be cut over the next few days.

Such bonds usually have early exit penalties, but Chancellor Rishi Sunak has announced savers will be able to access notice funds without penalty as part of new Government coronavirus measures.

Moneyfacts says some ‘ easy access’ savings accounts have already disappeared.

For example, Ford Money’s Flexible Saver has been withdrawn as have accounts from Earl Shilton (Heritage, for the over-50s) and Leeds (defined access saver).

The notice account market has not escaped either, with Close Brothers Savings and Secure Trust Bank withdrawing products in recent days.