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Interest rates cut to 4.75% – what it means for savings and annuities

The Bank of England has cut interest rates for the second time this year. Here’s what it could mean for savings rates and those looking to buy an annuity.
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Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The Bank of England (BoE) has cut interest rates to 4.75% – the second cut so far this year.

But, what does this mean for savings and annuities, and is now the time to fix your savings or buy an annuity?

This article isn’t personal advice. If you’re not sure if an action is right for you, ask for advice.

What does the interest rate cut means for savers?

Savings rates stayed relatively stable throughout most of 2024. Following the first cut in August however, savings rates started to drop off the pace.

With easy-access rates generally moving in line with the base interest rate, it’s likely banks won’t waste any time cutting their rates further.

With inflation down to 1.7%, below the Bank of England’s 2% target, there’s still a healthy prospect of growing your spending power.

Inflation at the lower rate, however, will see interest rates continue to fall and the banks will close the gap.

Following Rachel Reeves’ Autumn Budget last week, the Office for Budget Responsibility (OBR) predicts inflation will rise back up to around 2.6% in 2025 – partly because of the policies in the Budget, plus higher energy costs.

So, with inflation perhaps popping its head above the parapet again, we can expect the BoE to lower interest rates a bit slower than first thought.

Going for a fixed rate can usually let you secure a better deal, so you’re unaffected by banks who rush to cut what’s on offer after rates fall, if you’re able to lock your money away for a period of time.

If there’s a slowdown on the cards though, locking in for longer on a fixed rate could help ride out the uncertainty.

The best rates in the savings market are currently still shorter-term fixed rates and, savers can get up to 4.78% with Active Savings.

But bear in mind, the longer you fix for, the longer you’ll secure that rate. So, instead of picking terms for the rate, it makes sense to pick the term that suits your needs.

Just remember, you usually can’t withdraw from fixed rates until the terms end.

You won’t find any of these deals at the big high street banks though – right now, it’s paying to save with smaller banks.

Switching your savings to a better deal can be a hassle, it’s why so many don’t bother. But savings accounts like Active Savings are designed to make switching and getting better rates much easier.

You’ll find great deals from multiple banking partners and can switch between them in minutes, all through one easy-to-use online account.

What does the interest rate cut mean for annuities?

When interest rates are cut, we normally see a drop in annuity rates.

Right now, there’s still good value rates out there.

A 65-year-old with a £100,000 pension can get up to £7,345 per year – that’s based on a single life, annuity guaranteed for five years, based on an average postcode, paid monthly in advance and with no increase.

This is slightly below the £7,586 highs of October 2022, but marginally higher than the £7,217 in July 2024.

It’s important to remember that interest rates aren’t the only thing that affect annuity rates.

Unlike health insurance, where disclosing health conditions can increase your premium, providing more details to an annuity provider can increase how much you get paid.

It’s why shopping around is so important. The difference between providers can work out at hundreds of pounds a year – over the course of a retirement, this could add up to thousands.

Once you buy an annuity though, you usually can’t change your mind. So it’s important to consider your options carefully.

Start by using our annuity quote tool to find out what you could get.

Annuity quotes are guaranteed for a limited time only and rates change regularly. They could go up or down in future. Consider your options carefully, as you can’t usually change the terms of the annuity once it’s set up.

What you do with your pension is an important decision that you might not be able to change. You should check you're making the right decision for your circumstances and that you understand all your options and their risks.

The government's free and impartial Pension Wise service can help you and we offer retirement advice if you'd like it.

Get peace of mind with financial advice

Our advisers can adjust your financial plan post-Budget. Understand how inheritance tax on pensions and risings capital gains tax could impact you.

This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).

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Written by
Christian Peasgood
Christian Peasgood
Investment Writer

Christian is a member of our Editorial team with a special focus on educational content. He looks after the investing guides and tools on our website and provides insightful content for our News & Insights section.

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Article history
Published: 7th November 2024