Rapidly rising inflation has been pushing up the Bank of England’s (BoE) base rate at a historic pace in the last few months.
The rate, set by the Bank’s Monetary Policy Committee (MPC), rose by 0.5 per cent in both August and September and currently sits at 2.25 per cent (at the time of writing).
There were concerns that the MPC could meet again in September after the Government’s mini-Budget, which set the pound into freefall and rattled the markets.
However, the Bank held firm and has said that it will continue to review the base rate at regular intervals, as it tries to combat inflation.
Nevertheless, there have been suggestions from economists that the rate could continue to rise into the new year and reach levels of six per cent or more.
The increases in the base rate and the turbulence in the markets have already forced banks and lenders to change their interest rates on borrowing, with many deciding to pull existing products, particularly mortgages, from the market.
Understandably, those with debts are concerned about rising interest rates, as this will push up the cost of servicing their debts in the months ahead.
But what about savers?
Rising interest rates are generally a good thing for savings accounts, as high street banks and building societies typically increase savings rates in line with the base rate.
At the moment, savings rates remain below the current base rate, but experts expect them to catch up over time as banks update their products to reflect the state of the market.
Those with variable rate savings accounts that track the base rate as it goes up stand to make the most immediate savings, but many other accounts should enjoy better rates in the weeks and months ahead.
Are savings growing in real terms?
While it is positive to see savings account rates increasing, the reality is that many of the accounts out there are not keeping pace with inflation.
This means that while savers might be getting a better return on their initial investment, the money itself doesn’t have the same buying value as it did before.
For example, in the 12 months to August, the Consumer Prices Index (CPI) was 9.9 per cent. However, according to an analysis of the current savings accounts market by Interactive Investor, this was over 14 times higher than the average easy access savings rate during the same period.
To make your money work for you during this period it is really important that you seek independent financial advice to ensure your savings, pensions and investments are working for you.