What’s coming next for the UK Savings Market?

Author | Sylvia Morris

Sylvia is an award-winning freelance journalist and savings expert, writing for publications including the Daily Mail and This is Money.

In this exclusive article for United Trust Bank customers, we asked highly acclaimed journalist and savings expert Sylvia Morris to take a look at what’s happened to the savings market over the last few months, and tell us what she thinks may happen next.

After years of miserly returns, the savings market has jumped back to life.

For the first time in years, savers can make a meaningful return on their nest eggs as central banks raise interest rates in a move to dampen inflation.

And while savers cannot protect their nest eggs from inflation, they can ensure they are earning the best rates available on their money.

Some experts now think rates have peaked and savers could do better by fixing in for three to five years rather than going for popular one-year deals.

It all started slowly back in December 2021 when the Bank of England raised base rate from its historic low of 0.1 per cent.

In the last few months, the pace has quickened with the Bank core rate jumping from 1.75 per cent last August to 4.25 per cent now – and could even go as high at 4.5 per cent at the next Bank of England meeting on May 11.

Savings rates followed suit thanks to competition among newer banks and savers sprang into action.  They soon realised that after years of poor returns, they could now earn £100s extra interest on their nest eggs by searching out top fixed rate deals.

The latest Treasury Report from Moneyfacts on savings trends in the UK show that average one-year fixed rate stands at its highest point since December 2008.

In March, the latest figure available, it was 3.65 per cent against a mere 0.89 per cent a year earlier.

That gives an extra £276 interest a year on each £10,000 – and more to be made by seeking out the top rates which stand at over 4.25 per cent.

Fixed rate bonds proved more popular than easy access accounts.  Savers rushed to lock into the higher rates which experts said could be at their peak at the end of last year when inflation hit a peak of 11.1 per cent.

They poured a huge £31 billion into bonds in the last three months of last year, having up until then steadfastly preferred easy access over tying their money up for years.

Rates peaked late last year with one-year fixed rate bonds around the 4.6 pc level before falling to nearer 4.25 pc at best.

But since then, inflation has proved to be resilient and remained at over 10 per cent since last September.  This led to the Bank of England raising base rate again and markets expecting higher interest rates.

One-year fixed rate bonds have also increased back to the 4.6 per cent mark.


Traditionally you can expect to earn more interest if you are willing to tie part of your money up for five years rather than one.

But right now, you get next to nothing for tying your money up for three to five years rather than sticking to a one-year deal. There is around 0.1 of a percentage point difference in the rates – an extra £10 interest a year on each £10,000 for parting with your money for five years rather than one.

Some providers offer less for a five-year deal rather than a one-year, clearly indicating that rates are likely to fall.

That’s because wholesale money markets expect rates to fall in the longer term as inflation is finally bought back under control.

The Office for Budget Responsibility expects inflation to drop to 2.9 pc by the end of the year. Other experts expect inflation to fall significantly to stand at around 5 per cent early next year as the huge hike in energy prices last year drop out of the inflation equation.

As inflation falls, the Bank of England is expected to lower interest rates.

There may be one of two more rises in base rate before things start to slow down but there is a consensus among experts that we are nearing the savings peak and rates this time next year could well be lower.

But if rates are set to fall, fixing it at today’s higher rates for the longer term will prove a smart move.

Kevin Mountford, co-founder of savings platform Raisin says: ‘With rates likely to fall in the longer term, those who can afford to lock some money away for the medium term should do so.’

If you go for a one-year bond, you could find that rates are lower in a 12 months’ time when you come to renew your bond.  But if you fix for longer you can potentially enjoy that higher rate for longer.

Alternatively, you could hedge your bets by using a strategy known as staircasing.

The idea involves splitting your money around fixed-rate accounts for varying lengths.

For example, putting half a £10,000 deposit into a one-year deal and the other half into a five-year deal.

It means that if rates do rise, you will be able to reinvest the £5,000 into a higher paying account in 12 months’ time, while also taking advantage of current better deals.

You might be a little adrift from the general market but will have the security of knowing how much interest you will earn.


With interest rates rising, savers should make sure they use their annual ISA allowance to ensure they do not have to pay tax on their interest.

Each year basic rate taxpayers get a £1,000 personal savings allowance which lets them earn the first £1,000 interest in an ordinary account without paying any tax.

A year ago, when fixed rate bonds paid 1.75 per cent at best, savers could have £57,150 in the bond without fear of busting the allowance.

Higher rate taxpayers with a £500 allowance could have £28,560.

But with rates now at 4.6 per cent, those figures have shrunk to £21,750 and £10,875 respectively.

Savers therefore need to look to make sure of their annual cash ISA allowance.  This allows you to put £20,000 each tax year into a cash ISA which is essential the same as a savings account, but all your interest is tax free.

You can expect a lower headline rate in a cash ISA, but it will be higher than the rate in an ordinary account where you have to pay tax.

Although this email and article may contain helpful information and tips, these are not personal advice. You may wish to seek advice from a financial advisor if you are unsure what’s best for your own personal circumstances.