Peak practice What should you do about your savings and your mortgage?

A lack of absolute certainty whether 4.5pc is the Bank Rate’s peak will be making mortgage borrowers and savers alike feel caught up in a game of 21. Do they stick, or do they twist?

Tracker or fix?

Tracker mortgage rates follow the Bank Rate, while fixed rates remain the same. When fixed rates rise above the base rate, trackers can become more desirable. But when the Bank Rate rises, trackers can become more expensive.

The average two-year tracker rate at the time of print was 5.07pc, while the average two-year fix was 5.32pc, according to Moneyfacts. But price is not the only factor. Buying a tracker also depends on the future of the base rate. If it rises again, which economists think it might not, then those on a tracker would see their rate – and hence their mortgage repayments – go up.

Chris Sykes, at Private Finance, said “not many” of his clients were opting for trackers.

“Up to six months ago – when the Bank Rate was lower – trackers were much more attractive. But now the base rate is much higher, they aren’t quite as attractive as they were. Trackers are generally priced with a margin above the Bank Rate, so you’d likely be paying between 4.75pc and 5.25pc, depending on the loan-tovalue and your circumstances,” he said.

On longer-term fixed rates, Mr Sykes said lenders are already passing on some of the future discount to borrowers, anticipating the base rate to come down over the next few years.

First Direct was last night offering a 4.03pc rate for five years, while Nationwide Building Society was offering a 4.34pc rate for 10 years, according to Moneyfacts.

Barclays has said the Bank Rate is unlikely to come down until the second half of 2024. So if borrowers are considering two-year trackers now, the saving is unlikely to kick in until the tail end of the mortgage.

Easy access or fixed-term bond?

Interest rates on fixedterm bonds are the best some experts have seen since 2015. So much so, that even Andrew Bailey, the Bank of England Governor, is encouraging savers to shop around.

But these deals might not be around for long. This is because if the Bank Rate does not climb further, interest rates for savers could either stagnate or fall. The UK arm of Turkish deposit holder Isbank is offering a 4.95pc rate on a seven-year fixed bond with minimum savings of £1,000, according to Moneyfacts.

If a saver were to deposit £10,000 in this account, over seven years their savings would grow to more than £14,130. But as part of the deal, they cannot access this cash over the fixed period.

Meanwhile, most easy-access accounts are offering interest rates well below the new 4.5pc Bank Rate. The average rate on an easy-access account is just 2.1pc, according to Moneyfacts — less than half the new base rate.