The Bank of England (BoE) has cut interest rates to 5% – the first cut in four years.
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 mean for savers?
Savings rates have stayed relatively stable through 2024. But with interest rates now cut, we expect to see savings rates starting to drop.
Easy-access rates generally move with the base interest rate. So, banks won’t waste any time cutting their rates.
With inflation at 2%, there’s still plenty of opportunity to grow your spending power. But the gap will close as soon as banks cut their rates.
Using a fixed rate usually lets you secure a higher rate, so you’re unaffected by banks who rush to cut what’s on offer.
The best rates in the savings market are still shorter-term fixed rates, where savers can get around 5%. 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.
Plus, you can now get cashback (terms apply).
Remember, inflation reduces the future spending power of your money.
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 £7,217 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 higher than the £6,782 in May 2023.
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.
That’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 bought, an annuity cannot usually be changed, so it is 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 may go up or down in future.
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.