Max savings & mortgages after base rate cut
The Bank of England cut the base rate - which underpins savings and many borrowing rates - from 0.5% to 0.25% last week, after seven years of no change. It also hinted the rate may fall again this year and cut its growth forecast for the UK economy.
Whatever the future, it's vital you take charge of your money NOW. Sadly, dire savings rates will get worse - yet decent returns are possible on non-standard savings deals. On mortgages, some rates will fall but don't automatically stay put. Here's the lowdown.
Earn 24 times the base rate - up to 6% savings
Savings rates are likely to be slashed en masse other than existing fixed rates - see our bank-by-bank breakdown of cuts. So it's the PERFECT trigger time to ditch poor-paying accounts. Our savings fountain explains which type of account is best for you, if new to savings. If you know what you want, we've the top deals below (all have UK savings protection). Be warned: banks could chop rates on ANY account, so double-check before applying, and be prepared to switch again if variable rates dive later:
Earn 5% via current accounts. These smash easy-access savings and 76% in our July Twitter poll said switching bank was hassle-free. The competition regulator yesterday announced plans to aid switching, such as personalised comparisons, but that's years off so don't wait - there are plenty of good deals NOW. Rates below are variable so aren't immune from cuts, unless stated.
- Bigger savers can earn 3%: Santander 123* pays 3% AER if you've £3k to £20k. Its £5/mth fee is covered for most by up-to-3% bills cashback (min £500/mth pay-in). Couples can have three accounts covering £60k (one each & a joint). If Santander cuts the rate (it's "under review"), see if Santander 123 would still be worth it.
- Up to 5% for smaller savings: TSB* pays 5% AER on up to £2k, plus you can get up to £5/mth cashback on contactless card spending (£500/mth pay-in). Nationwide FlexDirect* is 5% AER fixed for a year on up to £2,500, 1% AER variable after (£1,000/mth pay-in), while Club Lloyds pays 4% AER on £4k to £5k (£1,500/mth pay-in).
- Will I get them? You must pass a credit check and usually have a couple of direct debits going out. Full info & eligibility in interest-paying accounts, or see £150 bank switch bonuses.
Earn up to 6% with regular savings. They pay high interest but on small sums, usually for a short time, though you must meet min & max monthly deposits. Rates are fixed for a year, so are immune from cuts once you've got the account, unless stated.
- Top payers are 'bank-linked': You need a specific current account for them - luckily these tend to be best buys. First Direct's current account gives switchers £100 and is no.1 for service, plus its linked regular saver lets you save up to £300 a month at 6% fixed. Others are M&S Bank (6%) and Nationwide (5%, though this is variable). - 2.05% for anyone: The top open-to-all deal is Furness BS at 2.05% AER variable, on up to £250/mth. Full info in Top Regular Savings.
Help to Buy ISAs: Up to £3k FREE for first-time buyers. If you're 16+ and have never owned a home and may want to, they're usually a no-brainer. Open-to-all accounts pay up to 2.5% interest and 25% is added by the state, up to £3k, if used towards a deposit on homes up to £250k (£450k in London). While the rate is variable, the bonus percentage and cap is fixed. Full info: Help to Buy ISAs.
Up to 1.85% in fixed savings. These beat up to 1.45% easy-access savings & the rate is fixed, but you can't withdraw early.
- Top 1yr is United Trust's 1.5% AER (min £500). Bank of Cyprus UK is top for 2yrs at 1.75% AER (£10k); 3 yrs at 1.85% AER (£10k). Full best buys & help in Top Fixed-Rate Savings.
Max your mortgage - incl should you ditch your fix?
Some will see mortgages get cheaper after the base rate cut. Whatever the impact, if coming to the end of your fix or tracker, pounce on a new deal as your rate will likely rocket soon - you can usually do this three months ahead. If looking for a new deal, whatever the reason, see our Remortgage PDF Guide or First-time Buyers' PDF Guide for help, plus our Mortgage Best-Buys Comparison for the top deals.
Fixes are fixed - check if you'll save ditching yours. They account for half of mortgages, and as the name suggests, rates WON'T change during the fixed period. That doesn't mean do nothing.
Use our Ditch your fix? tool to check if you can save by switching from a pricey fix. For example, if you've a 3.49% fix with 23mths left on a £100,000 mortgage, you could save if you can switch to anything better than a 1.51% fix with a £1,000 arrangement fee, even taking into account £2,800ish extra switching fees. It won't work for all, so check via the tool.
Will your lender cut your standard variable rate (SVR) or 'discount'? These move at lenders' whim as they're not directly linked to base rate. See our lender-by-lender update on which have announced cuts - sadly, only half have so far confirmed plans, we'll update the list as we know more.
SVRs, which average 4.8%, are pricey, so don't automatically stick even if your rate is cut. You'll usually be on an SVR when your fix or tracker ends. A 'discount' follows the SVR at a set rate, eg, if the SVR is 4% and the rate is SVR minus 1%, it's 3%. See SVR Help.
Check when your tracker will fall. These 'track' the base rate, so for the 1.5 million on them, mortgage costs should drop by an average £20/mth on a typical £150k mortgage. See our lender-by-lender update for when each plans to cut the rate. Most will be from Sept but some, such as Virgin, will make customers wait till Oct.
A tiny number won't see rates drop where their deal has what's called a 'collar', which prevents rates falling below a certain level. You should be contacted by your lender if you're impacted.
I'm looking for a mortgage - should I wait for cuts? Rates could fall a touch, though the Bank of Eng expects any will be limited.
Our message for months has been mortgage rates are ultra-low already. That hasn't changed, so why wait, especially if you've an offer? Also, if buying a new home, you risk losing it by dallying.
To highlight the low rates, HSBC launched a 0.99% two-year fix in June, with a £1,499 fee if you've a 65% deposit/equity. It's still here and is as low as we've seen.
More mortgage tips and calcs. You need a good credit history (see Boost Your Credit Score Tips) to get most mortgages and typically a deposit or equity of at least 60% of the value for the best, and 5% for anything at all. Also try our Ultimate Mortgage Calc, incl...
Basic Mortgage Calc | Compare Two Mortgages | Mortgage Overpay Calc | Compare Fixed Mortgages | Ditch Your Current Fix?
Our Ditch Your Fix? tool can show you if you could be better off moving your mortgage
Here's a Q&A on other post-base rate cut hot topics you've asked about...
Q. Should I buy holiday money now? The cut led to the pound falling in value, so you'll get fewer euros/dollars etc. Just before the base rate announcement, at 11.40am on Thu, £1 bought €1.19 and $1.33. At 5pm yesterday £1 bought €1.17 and $1.30. No one knows how currencies will move but we've a trick to protect against swings. For near-perfect rates worldwide, specialist credit cards don't charge the typical 3% 'load' most cards do. Halifax Clarity (eligibility calc / apply*) has good feedback, is a Mastercard (so usually gives best rates) & has low ATM fees. Creation (apply*) is similar, with cheaper withdrawals, though we've little feedback (tell us). Spending is cheaper than withdrawing cash and always repay in full to minimise 18.9% and 12.9% rep APRs. See: Top Travel Cards (APR Examples).For cash, our TravelMoneyMax holiday money comparison tool finds the cheapest near you. The app (iPhone or Android) does the same and can store your card details to show your cheapest way to pay.
Q. Will cheapest-ever loan rates fall further? If you have one, your rate is almost certainly fixed. For new loans, rates from 3.2% are already at record lows, driven by strong competition. So there's not much further to drop, and as with mortgages, there may be little point waiting. If you're looking for a loan, all providers credit-score you, so use our free Loans Eligibility Calc to find which you've the best chance of getting and see our Cheap Loans guide for the top deals.
Q. Will credit card and overdraft rates drop? With a few exceptions, they're unlikely to move as they're less linked to the base rate. If you're paying interest at all on your credit card... STOP. See below for how you can cut your rate to 0% for 3yrs+. If overdrawn, see how to cut overdraft costs.
Q. Will it affect my student loan? If you started uni from 1998-2011 in Eng and Wales, or any time from 1998 in Scot or NI, it's likely your interest rate will rise in Sep to 1.25% from 0.9% (it would likely have been 1.5% without the rate cut). See Student Loan Help.
Q. Should I pay off debt instead of saving? With rates at all-time lows those with debts AND savings could consider paying debt off with savings where the debt interest is higher than the after-tax savings rate. Full pros and cons in repay debts with savings.
This article first appeared in the weekly email on 10 August 2016.